The financing of social protection in Europe: achieving the impossible?

Alarming messages are regularly launched into the public arena concerning the financing situation of the European Welfare States, and in particular their capacity to continue financing public pension schemes. Titles like: Sprengen Pensionslasten die Staatskasse? (Are pensions liabilities going to explode the State Treasuries?) are illustrative of the general trend. Depending on the source of such messages, their degree of reliability and credibility varies. Given the tremendous economic and political interests which are at stake, social protection has become a battlefield between different political ideologies and between public and private providers of social protection or private insurance. Financial data are a central element in this debate. All experts involved with social protection issues are bound to recognise that the future financing of social protection gives rise to serious problems, due to factors which include the excessively low level of economic growth, the unfavourable employment situation, the ageing of our society, the fierce international competititon and the budgetary constraints placed on governments in the run-up to EMU. Where divergences arise is in the conclusions drawn from these findings. Those who believe in solidarity will seek ways and means of keeping the public systems on their feet and adequately resourced: those who, on the contrary, favour less collective arrangements will recommend the development of private insurance systems to replace the public systems, thereby lightening the collective burden. A third possible future approach consists in a sort of flexible policy mix whereby people will be offered a choice concerning the level up to which they wish to join the collective insurance schemes. One thing, however, appears clear from the outset: whatever the option may be, the financing of future social or individual protection will require more money, and the option of individual insurance arrangements could well prove the most expensive choice. For this reason, as well as on social and political grounds, the maintenance of a financially-sound collective system of social protection emerges as preferable.