A Challenge to Europe's Economies
BERLIN--In the cars and buildings afire across France, many economists see not only the rage of a disaffected generation but the death of a particularly European dream. For the 40 years after World War II, much of western Europe embodied the lofty ideals of a socialized democracy, spoiling citizens and attracting immigrants with high wages, ample jobs, and a generous social safety net. Now, in the face of ballooning immigrant populations, eastward expansion, and globalization pressures, "it's clear that the European social model has failed," says Jean Pisani-Ferry, a director at Brussels's Bruegel economic think tank.
Numbers tell part of the story, as western Europe lags a global economic growth rate of perhaps 4 percent this year. Oliver Hulsewig of Munich's Ifo Institute for Economic Research predicts that the 12-nation Eurozone will fall a full percentage point behind Japan's slim 2.3 growth rate.
Old ideas. What's Europe's problem? France's 35-hour workweek and five weeks of vacation hardly seem compatible with the requirements of an on-demand economy. Because European nations hold to old ideas about the government's main role as providing a safety net of jobless and health benefits rather than generating growth, unions remain strong, labor costs remain high, and economic policy is often more focused on protecting pensions than on creating jobs. One result: high unemployment, particularly among youth. Belgium, Spain, and Italy all have youth unemployment rates over 20 percent.
Slowly, Europe is changing. Germany has begun restricting unemployment benefits, and the country's largest metalworkers' union last year agreed to let Siemens increase the workweek from 35 hours to 40 in return for a company promise not to move jobs overseas. France has begun the painful process of pension reform. Still, "it's a gradual process," says Ed Teather, an economist at UBS AG in London.
If there's still hope for the cherished European social model, it's in the north. Denmark and Sweden have managed to combine high employment and economic growth with generous unemployment and healthcare benefits. A worthy goal, acknowledges Barbara Boettcher, a director at Deutsche Bank Research in Frankfurt. "But you just can't compare. These relatively small, homogeneous countries have far less complexity to manage than Germany or France."
This story appears in the November 21, 2005 print edition of U.S. News & World Report.