Please forgive me the vanity of quoting myself, but the temptation to say "I told you so" is just too great here.
In 2006, I published Menace in Europe: Why the Continent's Crisis is America's, Too. (I hate that title, by the way. My publishers insisted upon it, telling me the sales force thought the title I wanted, "Blackmailed by History," would never sell. I deeply regret that I didn't go to war over that. It didn't sell, anyway, and now I have to look at a book with a title I loathe for the rest of my life. There's a lesson in this, somewhere.)
I was sorry that the few people who did read it focussed almost entirely on one part of the book's message, my concern about growing Islamic radicalization in Europe. That was only one of my anxieties, and while it is a serious issue, I also noted the potential for a rise in equally minatory neo-fascist movements in Europe, and firmly dissociate myself from those who insist upon trivializing this possibility. It's a grave mistake for American conservatives to imagine that these movements represent something like the Tea Party. They don't.
But even this is not my point. My point is this. I wrote, in 2006:
Americans need not be much impressed by, or attempt to emulate, Europe's controlled economies and social welfare policies. ... Americans who are tempted to consider high levels of structural unemployment a reasonable price to pay for cradle-to-grave social welfare should consider more closely the social costs of that unemployment, particularly the barrier it constitutes to the economic integration and advancement of immigrants and thus to the entire polity's harmony and welfare. ...
I do not prophesy the imminent demise of European democratic institutions, nor do I predict imminent catastrophe on European soil. But I don't rule out these possibilities either. Europe's entitlement economy will collapse. Its demography will change. The European Union may unravel. ... We have no idea what these events would herald, but it is possible and reasonable to imagine a very ugly outcome.
And once again, the only people to whom this will come as a surprise are those who have not been paying attention.
Today, Bloomberg finally notices: To Thrive, Euro Countries Must Cut Welfare State:
Clearly, the welfare-state expansion in Greece and Portugal was part of the reason these two countries ended up as clients of Europe’s bailout mechanisms. But Ireland and Spain had problems with the rapid expansion of the state, too. A big part of rising affluence during the boom years was generated by escalating real-estate bubbles, which caused private debt to soar. They boosted the construction sectors and, more generally, pushed domestic consumption to the point where Spain had to borrow as much as 8 percent of gross domestic product every year to finance its current account deficit. Like other bubbles, they spearheaded economic growth, which allowed governments to expand the state rapidly.
That growth vanished and gold turned to sand. Simply put, the bubble-fueled prosperity wasn’t sustainable. A record of solid fiscal surpluses was quickly turned into high structural deficits. Spain, for instance, entered 2008 with a budget surplus of slightly more than 2 percent, and ended 2009 with a structural deficit of 9 percent.
This has been a familiar story during the crisis. Yet surprisingly few people in Europe have bothered to understand the role that the welfare state played in creating it. ...
Europe’s crisis economies will now have to radically reduce their welfare states. State spending in Spain will have to shrink by at least a quarter; Greece should count itself lucky if the cut is less than a half of the pre-crisis expenditure level.
The worse news is that this is likely to be only the first round of welfare-state corrections. The next decade will usher Europe into the age of aging, when inevitably the cost of pensions will rise and providing health care for the elderly will be an even bigger cost driver. This demographic shift will be felt everywhere, including in the Nordic group of countries that has been saved from the worst effects of the sovereign-debt crisis. ...
Europe’s social systems will look very different 20 years from now. They will still be around, but benefit programs will be far less generous, and a greater part of social security will be organised privately. Welfare services, like health care, will be exposed to competition and, to a much greater degree, paid for out of pocket or by private insurance.
The big divide in Europe won’t be between North and South or left and right. It will be between countries that diligently manage the transition away from the universal welfare state that has come to define the European social model, and countries that will be forced by events to change the hard way.
Well, you know--no kidding. How can something that was so obvious have escaped so many people? That's a serious question, by the way. What the hell was wrong with so many people that they couldn't see this coming? This crisis was a barreling freight train complete with deafening sirens and flashing-red, all-hands-on-deck alarms. Yet for some reason, the world just decided to grab a comfy pillow, pop a Xanax, and take a good long snooze on the train tracks.