Quote of the Day: Europe is Drowning Under the Cost of Welfare Bills

A debt crisis in Europe seems inevitable. Reason? Exploding costs of welfare politics.

Telegraph's Matthew Lynn explains:

Europe’s welfare spending is out of control, and is on a scale that is both lavish and unaffordable compared with the rest of the world. There is a problem, however. Neither she, nor any other political leader in Europe, has the will to do anything about it.

Eurostat, the statistical agency of the European Union, has this week published updated figures on the total welfare bill across Europe. It is rising, and in some countries is getting up to a quarter of national output. Meanwhile, the percentage of spending on stuff like infrastructure or education, which increase an economy’s potential output, is falling.

So long as that is true, it is very hard to see anything other than a bleak future for any of Europe’s economies.

If you dip into the blogs, there is a mildly entertaining debate about whether Merkel’s often-quoted figures are correct. On close inspection, it turns out that nations that make up the EU currently account for 7.2pc of the world’s population and a shade over a quarter of total output. When the World Bank crunched the numbers on social spending, however, it found that in fact Europe accounts for a massive 58pc of global welfare spending.

What is certainly true is that Europe’s welfare budget has turned into a juggernaut that is careering out of control. On the World Bank data, the United States accounts for 18.8pc of global welfare spending, as you might expect from the world’s biggest economy. But Germany, around a third of its size, currently spends 12.5pc of the global total. France, a smaller country still, accounts for 9.9pc. The UK racks up close on 7pc. Contrast that with some far bigger, and faster- growing, countries. China, with 20 times our population, accounts for 2.4pc of the total. Russia accounts for 2pc and India just 0.6pc.

According to Eurostat, the total cost of welfare across the EU now amounts to 19.5pc of total GDP, compared with 17.5pc as recently as 2006. If you restrict that to the eurozone countries, the total rises to 20.5pc. In Denmark and France it is now close on 25pc.

For all that the Left complains about austerity in this country, our total spending on social protection is only slightly below the European average at 16.5pc of GDP. In controversial areas such as disability benefits, where the Government has now abandoned some modest cuts, we are in line with the EU average, spending 2.8pc of GDP. (Our welfare bill is only less than average because a fantastic performance on job creation means we spend just 0.2pc of GDP on unemployment, compared with a eurozone average of 1.8pc, and 2pc in a country such as France).

Overall, in almost every country, it is going up. With ageing populations, that is hardly likely to decrease – poverty-stricken Greece is now spending 15pc of GDP on pensions, and Italy 14pc. Europe is literally drowning under the cost of its welfare bills.