Europe’s struggling welfare systems

For nearly eight decades, Europe’s generous welfare system has enabled its citizens to rely on the state for essential services, such as education, healthcare, retirement income and unemployment benefits.

However, signs that the welfare state was slowly but surely heading towards bankruptcy have been ignored for too long. Politicians of different ideologies have failed to undertake the necessary reforms to overhaul the system and ensure it provides the peace of mind people need to deal with life’s challenges.

Today, the welfare system in most European countries is no longer fit for purpose. Things must change, but there is little indication of what needs to be done to make this change as tolerable as possible for ordinary people. Ironically, Donald Trump’s return to the White House may be the catalyst for a change in the mindset of many inept European political leaders.

The trade war declared by Trump has understandably been described as unfair, as it is based on unorthodox calculations of trade deficits. However, it will help instil a sense of urgency in the EU and the UK to reform the way public money is spent.

Europe’s formidable challenges include an ageing population, poorly managed immigration pressures, inadequate spending on defence, education and healthcare, rising income and wealth inequality, climate change and insufficient investment in technology.

Of course, the mismanagement of the welfare system is another factor contributing to its unaffordability. For example, in the latest official figures for 2024, nearly one million young people aged 16 to 24 in the UK were ‘Not in Employment, Education, or Training’. The international term for this is ‘NEETs’.

Worse still, more than half of them (552,000) were not only not working or studying but were not even looking for work. This latter figure for ‘economically inactive’ NEETs is up by 68,000 in the same period in the pre-COVID year of 2019. The increase in NEETs overall is 146,000.

Many Southern Europeans abuse the welfare system more blatantly, with some politicians disregarding the risks of creating a culture of dependence on government handouts in return for electoral support. If political leaders continue to focus on winning the next election, the welfare systems of many European countries will likely implode in the foreseeable future. 

If political leaders continue to focus on winning the next election, the welfare systems of many European countries will likely implode in the foreseeable future

Bruno Palier is a research director of the Centre for European Studies and Comparative Politics at Sciences Po in Paris. He recently told CNN: “To continue to pay for pensions and healthcare, we sacrifice the future, which is investing in education, children and research and development. This is where the fear should be.”

The EU is becoming increasingly dysfunctional at a time when it faces formidable defence, economic and social risks. For decades, its governance structure has shown signs that it can no longer promote the change the old continent needs to address the risks building up along its eastern, southern, and now western borders.

The political leaders of the member states have become experts at horse-trading to secure the best benefits for their countries while ignoring the risks of fragmentation. At a time when they can no longer even rely on the security guarantees the US provided, they fail to understand that radical change is needed in how the EU prepares for a new world order.

For instance, according to OECD data, productivity growth in Europe is slowing. This will make it more difficult to maintain social welfare provisions, which in many European countries are more generous than in other advanced economies.  

In a speech delivered in November 2024, the European Central Bank president, Christine Lagarde, just weeks after Trump was elected, argued: “If we cannot raise productivity, we risk having fewer resources for social spending. Our European social protection system is now under pressure. We need to adapt quickly to a changing geopolitical environment and react to global trends in competitiveness and innovation. Failure to do so could jeopardise our ability to generate the wealth needed to sustain our economic and social model.”

There are, of course, solutions to all of Europe’s problems. For instance, demographic effects can be mitigated by curbing the generosity and abuse of social payments, encouraging people to work longer, or boosting the economically active population. Supporting families with young children more intensely is another urgent priority.

Europe’s welfare reform will remain difficult because it inevitably involves taking from some people to give to others. Unsurprisingly, the winners keep quiet while the losers shout. 

It takes rare, strong transformational leadership to make Europe’s welfare systems viable again.