European Crisis Threatens U.S. Recovery

Steven Hill, author of Europe’s Promise: Why the European Way Is the Best Hope in an Insecure Age, says the model remains strong. He sees Greece’s problems as growing not from overly generous benefits but low tax receipts—Greece has a pervasive culture of income and assets being hidden at tax time.

“Countries like Germany, France, Sweden and the Netherlands show that it’s possible to strike the right balance between taxes and government spending, providing sufficient support for your people without stifling businesses or crippling the economy,” he says.

Other analysts see the current turmoil as inevitably pushing countries all over Europe to rethink whether they can afford such an array of social services. Faced with mounting government debt, slow economic growth and new competition from the rising economies of Asia, many had already been tinkering with the system.

“They can no longer continue with the hefty pensions, with the big safety net,” says Scheherazade S. Rehman, director of the European Union Research Center at George Washington University. “Europe is going to be under new pressure down the road to loosen the social contract.”

But that will not happen easily. In Britain, for instance, all major political parties firmly support the country’s National Health Service. The French government was forced in 2006 to back off from a plan to give employers more leeway in dismissing new hires.

There is often intergenerational solidarity on this issue. Older people want to keep the benefits, younger people want to get them. Rehman says the view of working Europeans is, “This was promised to us. We’re entitled to it. How can we live without it?” They direct their anger at the government, not at older people whose benefits have helped run up the debt.

Rehman predicts an eventual compromise: Europe will shed some services to move toward the American market-based model, while America will move toward Europe with such steps as the recently enacted health care law.

Silver linings

Though the European crunch is in general bad news for Americans—extreme scenarios have it triggering a whole new round of global collapse—there may be silver linings.

The downward pressure on dollar interest rates—caused as investors sell euros and buy dollars for investment here—has affected the yields of savings, but it is also making mortgages cheaper and could facilitate the start-up of local businesses.

And with the fall of the euro, you can vacation in Europe for less: Travelers stepping off airplanes in European cities can now get a euro for about $1.25, compared with about $1.50 last November.

John Burgess, a former reporter and editor at the Washington Post, is an associate editor at the AARP Bulletin.