Impact of Global Economic Crisis on the European Welfare States

Abstract

1. Introduction Over the past two decades reform need arose in the European welfare states, deriving from demographic factors, employment crises and public debt (Thalassinos et al. 2010). The evolution of security benefits since the 1990s reflects that in many EU countries the dismantling of the welfare state is already obvious. These tendencies are in part explained by the reforms of pension and healthcare systems, which account for 70-80 per cent of all welfare state expenditure. The global economic and financial crisis and the subsequent weaker growth are putting under pressure the European welfare states. Cuts in services, as well as tax and contribution increases are further entrenching the process of recommodification which has characterized the reform of European welfare states for years (Busch, 2010). Nonetheless, in the EU collective coverage of risks is comprehensive (3) and welfare spending accounts for 16-30% of GDP; this is why the repercussions of the global financial crisis mark a particularly serious stress test for the European welfare states. The unequal economic development and the catch-up processes (typical for the EU) determined also the dumping. While in countries like Greece, Hungary and Portugal the economic catch-up process has gone along with an expansion of the welfare state, in other states (Estonia, Ireland, Latvia, Lithuania, Slovakia and Spain) the welfare state has been retrenched, in spite of the economic progress. The new EU members from Central and Eastern Europe, with their stigmatization of socialism during the transformation from centrally planned economies to market economies, embraced the neo-liberalism typical for USA and Great Britain (4). As people sought to escape socialist paternalism and enforced entitlements such as unified corporate housing or corporate holidays, the general perception of the word social became increasingly negative (Vecernik, 1993). The global economic crisis had a dual effect for the security systems: (1) due to higher unemployment, the expenditures of insurance are increasing and (2) tax and contribution revenues are falling as a consequence of lower economic growth. Taking into consideration that most European states have used large rescue packages in response to the crisis and to bale out the financial sector, larger deficits have emerged in state budgets and in the budgets of insurance (Thalassinos and Politis 2011). Analyzing the state of the public budgets of EU countries in the wake of the global crisis, the European Commission (2009) indicated three measures: 1. the reduction of deficit and debt ratios; 2. an increase in employment rates and 3. security reforms, especially of pension and healthcare systems. These effects of the economic global crisis on the European welfare states were already investigated in a series of recent papers. For example, Diamond and Lodge (2013) present a comparative analysis of contemporary and future changes in welfare states and examine divergent trajectories of development across Europe in the aftermath of the crisis. They draw lessons from quantitative public opinion surveys in three key EU member states (France, Denmark and UK) to inform debate on the future shape of welfare states after the global crisis. Starting from the assumption that policy reactions to economic crises vary significantly across countries, Stake et al. (2012) make a comparative study on welfare state responses to three major economic crises (1970s oil shocks, 1990s recession, current financial crisis) in four OECD countries (Belgium, Netherlands, Sweden and Australia). Another interesting contribution is that of Hemerijck and Vandenbroucke (2012), who revisit policy as productive factor and link the euro crisis to the imperative of defining a Europe. …