May 232010

by Soeren Kern

European leaders are facing an uphill battle to restore confidence in the euro, after a €750 billion ($1 trillion) “shock and awe” financial rescue package failed to quell market fears that the sovereign debt crisis in Greece may spread across the European Union and possibly unravel Europe’s single currency. Although European stocks and bonds briefly rallied after the bailout fund was announced on May 10, European markets have since erased those gains and the euro, which has become a key indicator of confidence in Europe’s economy, has fallen to a four-year low against the U.S. dollar.

A close examination of the EU bailout fund shows that it is actually only a short-term fix — it merely uses new debt to pay off old debt and does not change the fact that all European countries will remain top-heavy with unsustainable debt. German Chancellor Angela Merkel admits that the EU rescue plan will do nothing more than buy time and put off a painful day of reckoning. But fears are mounting that European authorities are running out of options to prevent a full-scale financial meltdown.

Europe’s debt crisis is now calling into question the economic viability of the European social welfare state itself. Indeed, the biggest unintended consequence of the crisis is that it has proved the economic foundation of Europe’s much-vaunted social model to be far more unstable than previously imagined.

All across the continent, countries large and small are straining under the weight of debt caused by comprehensive “cradle-to-grave” social welfare. At least four trends, some of which are unique to Europe, are conspiring to bring down the edifice of the European social welfare model. They are demographics, chronic unemployment, cultural idiosyncrasies, and profligate politicians.

What follows is a tiny selection of sundry data that sheds some light on why European public finances are in so much trouble:

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