Wednesday, May 12, 2010

EU: "We can't finance our social model anymore"

Unless there are huge changes to the framework of their socialist policies they are screwed under a mountain of debt. But they have to deal with a population that has grown up expecting the government to be their mommy and daddy. When you have no concept of how government is paying for all these easy social programs, you get riots in Greece.

Government debt has been flagged by the IMF as a chief risk to economic recovery, particularly in the developed world and in such high-debt emerging economies as Hungary.

"We can't finance our social model anymore -- with 1 percent structural growth we can't play a role in the world," European Council President Herman Van Rompuy said Monday in remarks at the World Economic Forum in Brussels, just hours after European Union finance ministers approved the new program. European growth rates are lagging behind those in the United States and the rest of the world as the recovery takes shape, with Spain and Greece still in recession.

Access to the fund will be conditional: Countries that think they need help will have to show they are willing to make the changes needed to bring their deficits under control, similar to the process Greece went through in arranging a $140 billion bailout.

But the political challenge looms large, cutting to the heart of Europe's postwar identity. Particularly in the south, unions and socialist movements have established generous work rules and social welfare programs.

Greece, for example, is considered by the IMF to be one of the most inefficient economies in Europe because of the patchwork of rules governing its labor markets -- including the public sector's "employment for life" practices; the syndicates that keep control over pharmacies, law offices and other professions; and the array of early-retirement rules that drive up pension costs.

The government is pushing through changes to the pension plan this week, and the unions are gearing up for a fight.

"The rights of workers are not 'privileges.' The privileges are being enjoyed by the industrialists and big businesses," said George Perros of the executive committee of the Pan-Hellenic Workers Front. "Our position is clear: stable and enduring work for all."

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