"Europe is in Worse Shape than We Are", reports John Goodman at
www.ncpa.org:

"How many times have you heard that European countries spend half of
what we spend and get as good or better results? How many
Commonwealth Fund reports have you read, describing how health care
is so much better everywhere else?

Then there's that awful World Health Organization (WHO) report,
which ranks the US health care system almost dead last - at least
among the civilized nations.

Before you become too green with envy, read this latest National
Center for Policy Analysis report.
http://www.ncpa.org/pub/st/st319/st319.pdf

When you combine health care for everybody with an aging population
and health costs rising at twice the rate of growth of income and you
run the whole system like a giant Ponzi scheme... well... look out!

For the benefit of our American readers, today we offer a bit of
possible schadenfreude. Catastrophically bad as our unfunded
entitlement liabilities are, in other developed countries things are
even worse.

Europe is undergoing two major transitions. On the demographic front,
many European countries are undergoing rapid population aging as
their Baby Boom generations enter retirement, senior citizens live
longer and fertility rates remain well below the population
replacement level.

On the economic front, 15 European countries have adopted the euro as
a common currency, eliminating the ability to use monetary policy to
achieve country-specific economic goals. Both transitions will place
tremendous, conflict- ing pressures on the domestic national budgets
of European countries.

Executive summary:

These countries remain politically committed to maintaining fiscal
discipline, but large portions of their government budgets are funded
on a pay-as-you-go basis. That means that no real resources are set
aside and invested each year by government or individuals to pre-fund
future expenditures on such programs.

Spending on promised retirement and health-care benefits for the
elderly will increase. But there will be fewer workers to pay
benefits as the bills come due, and the growth of income from which
to extract taxes to support these programs will slow.

As a result, all European countries have large unfunded liabilities —
the difference between the projected cost of continuing current
government programs and net expected tax revenues.

In general: The average EU country would need to have more than four
times (434 percent) its current annual gross domestic product (GDP)
in the bank today, earning interest at the government's borrowing
rate, in order to fund current policies indefinitely.

At the low end, Spain would need to have almost two and one-half
times (244.3 percent) its annual GDP invested. At the high end,
Poland would need to have 15 times its GDP invested in real assets,
forever!

No EU government has made the necessary investment. As an
alternative, the next-best option is for these countries immediately
to gradually but significantly increase saving and investment.

In particular, the average EU country could fund its projected budget
shortfall through the middle of this century if it put aside 8.3
percent of its GDP each and every year. Despite this adjustment, a
budget shortfall is likely to emerge after 2050, requiring additional
fiscal reforms.

What will happen if EU countries do not set aside these funds? Unless
they reform their health and social welfare programs, they will have
to meet these unfunded obligations by increasing tax burdens as the
larger benefit obligations come due.

www.ncpa.org/pub/st/st319/st319.pdf

Measuring the Unfunded Obligations of European Countries

Although spending averages 40 percent of GDP today:

By 2020, the average EU country will need to raise the tax rate to 55
percent of national income to pay promised benefits.
By 2035, a tax rate of 57 percent will be required.
By 2050, the average EU country will need more than 60 percent of its
GDP to fulfill its obligations.

In some countries, the projected shortfalls are lower than the
average. In other countries, they are higher. This is the result of
several factors. For instance, life expectancy at birth (in 2004)
ranges from a low of 71.2 years in Latvia to a high of 80.7 in
Sweden, indicating higher age-related costs in older EU countries
than in newer, Eastern countries.

Another demographic factor is fertility, which is below the rate of
2.1 births per woman required to maintain populations. However,
fertility rates in the EU range from a low of 1.18 in the Czech
Republic to a high of just 1.93 in Ireland — indicating that the
Czech Republic is closer to a population implosion.

Partly as a result of these demographic differences, economic growth
rates also differ widely, from a contracting economy in Malta, with
a –1.6 per-cent rate of growth in GDP per capita (averaged over the
period from 1996 to 2005), to a 5.7 percent growth rate in Estonia.

In comparison, the United States' shortfall for Social Security and
Medicare alone has been somewhat smaller than the EU average, at 6.5
percent of future GDP. But as a result of the expansion of the
Medicare program to cover prescription drugs, the U.S. fiscal
imbalance is now 8.2 percent of future GDP. Putting this in
perspective, to close its fiscal imbalance:

The United States would need to save and invest an amount equal to
8.2 percent of its GDP beginning now and continuing every year
forever to pay expected future benefits without future tax increases.

This could be accomplished by more than doubling the current 15.3
percent payroll tax on employers and employees, immediately and
forever.

Alternatively, the federal government could immediately stop spending
nearly four out of every five dollars on programs other than Social
Security and Medicare — eliminating most discretionary spending on
such programs as education, national defense, environmental
protection and welfare — forever.

Each year that the United States does not take action to reduce the
projected shortfall, it grows by more than $1.5 trillion, after
adjusting for inflation.

Continue Reading:

http://www.john-goodman-blog.com/europe-is-in-worse-shape-than-we-
are/#more-2058