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"We are at the limits of what we can pay," said Simone Veil, former French Health Minister before her election last year as President of the European Parliament. "European ministers know the problem full well, but they have not started to alert public opinion." The reluctance to bear such unpopular tidings is politically understandable. Among voters, the hunger for ever more social programs has become a virtual addiction. New generations of Western Europeans take for granted the benefits they have inherited—and demand more. It was easy enough for governments to comply during an era of rapid growth, when rising welfare costs were absorbed by expanding economies that each year churned out more tax revenues. No longer.
Says Emile van Lennep, secretary general of the Paris-based Organization for Economic Cooperation and Development: "In the industrialized democracies, we let the success of the 1960s go to our heads. In responding to the aspirations of our people, we allowed our economies to become overloaded, overregulated and insufficiently profitable. We overdid it." The stagflation engendered by the post-1973 oil price crisis eroded both tax revenues and purchasing power. Swelling unemployment added to relief rolls. Yet even as the resources to pay for them shrank, government outlays for social services kept growing. The squeeze on national budgets may require such NATO allies as West Germany, Belgium and The Netherlands to reduce planned defense spending in order to maintain welfare levels.
A look at the dilemma in the countries that have been most committed to the welfare idea:
THE NETHERLANDS. The bare maintenance of welfare outlays at present levels—30% of a national budget of $150 billion—demands a 2% annual increase in national production. But economic growth is expected to drop to zero this year. What to do? The government last winter froze wages, an act that provoked a rash of strikes and poisoned the social climate. The 1.4 million beneficiaries of state aid, a potent political force, have so far managed to blunt major attempts at social services reform in parliament. "Everyone agrees to the welfare state, but not on how to pay for it," concludes Wim Kok, head of the Dutch Labor Federation. "We are in the middle of a choice on how to divide a pie that is no longer getting bigger."