Tight Times Force Europe To Reduce Social Spending

AU REVOIR, SACRED COW

IN Europe, the sacred cow of social services is no longer so sacred.

Recession is forcing national budget-cutters from Italy to Sweden to reduce social spending - an unthinkable step in previous decades.

* In Germany this week, the Cabinet approved a $12 billion reduction in social spending, primarily in benefits for the unemployed. The step, loudly criticized by the political opposition and trade unions, was taken to help bring Germany's ballooning budget deficit under control.

* On July 6, the Dutch parliament passed a stringent new law aimed at reducing misuse of disability payments. The Netherlands discovered it has 25 to 30 percent more people declaring themselves unfit to work than neighboring countries have.

* Since coming to power in March, France's new government has slashed $6 billion from its health-care spending by making patients pay for more of their medical costs.

The British are in the process of reviewing "everything" in their social benefits system, and even Sweden, king of the welfare states, launched a program of systemic reform last fall. Now Swedes receive smaller unemployment checks, slightly smaller pensions, fewer housing subsidies, fewer vacation days, and fewer paid sick days.

"The underlying growth of our social system exceeded growth in the economy. We can't afford it if it goes on," says John Bretherton, spokesman for the Department of Social Security in London. Even the Thatcher years could not contain the steady growth of Britain's welfare system, which now accounts for 30 percent of all government spending.

In the European Community, governments spend a major part of their budgets on social welfare, which accounts for 26 percent of EC gross domestic product. This compares with roughly 15 percent in the United States.

With the exception of Britain, though, no European Community members are looking at wholesale reform of their welfare systems, says Ralf Jacob, a specialist on social spending for the EC in Brussels. "There are calls for completely rethinking the welfare state," says Mr. Jacob, "but I don't see any member states carrying this out."

Wilhelm Breuer, director of the ISG Institute for Social Policy and Social Research in Cologne, says Europe is missing an opportunity. He complains that the Germans, for instance, are nickel-and-diming their way to a short-term fiscal target without addressing root problems in social spending.

"What they're doing now is saving a bit of money for the next two or three years. But no one is thinking beyond that," he says.

AT the EC summit in Copenhagen last month, heads of state endorsed a list of short-term economic stimulus measures to try to revive Europe's sagging economy. They took a longer-term view by ordering up a "white paper" on economic recovery that focuses on job growth.

There appears to be little overall support for including welfare reform as part of the recovery plan, although this was urged by British Prime Minister John Major.

It is precisely the recession and resulting unemployment that are forcing governments to finally look to social spending for savings. European capitals are in a fiscal bind as they receive less tax income from businesses and individuals, yet have to pay more in social services as an increasing number of people lose their jobs.

Unemployment in Europe is greater than in the United States, with many countries here suffering jobless rates of over 10 percent. Spain leads the way with 22 percent.

"The [European] social systems were conceived in a period of high prosperity and now we're all headed downhill and suddenly can't find the financing" for them, says Alexander Boele, a Dutch diplomat in Bonn.

Mr. Boele adds that the 1996 EC target for member states to bring their budget deficits down to 3 percent of gross domestic product is added incentive to apply cost cutting to welfare spending. The target is a prerequisite for forming a single European currency, yet only Luxemburg meets the deficit criterion now.

"Monetary union is nearing, and we must fulfill these conditions" if the EC is serious about a single currency, says Boele. "We can't meet [the conditions] if we go on like this."

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