Monday, 17 September 2012

Too much benefits?

After viewing Eurostat's "Government Finance Statistics" publication for 1/2012 in which all data concerning income, expenditure, debt, deficit, and much more were visible, what amazed me was the size of social benefits paid by each country in the EU. Take a look at the following:
What is obvious from the above statistics is that all crisis-ridden nations have seen their social benefits rise over the past 15 years. Greece, Portugal and Cyprus are the top three in increases with 8.4%, 9.5% and 7% respectively. On the other hand, Germany and Finland have reduced the social benefits they pay by 1.5% and 2.6% respectively. It is noteworthy that the nations whose social benefits rose substantially over the last 15 years were the ones which in 1996 had the lowest percentages (Cyprus: 8.3%, Ireland: 12.5%, Portugal: 12.6%, Greece: 13.5%) This phenomenon is rather strange as citizens of most of the aforementioned countries will indicate that they were better off in 1996 than 2012. As politicians and policymakers increases social benefits
was to gain the public's appreciation, inflation set in, causing benefits to lose some of their purchasing power. Yet, as one may observe, the only nations in the EU which are not under fire and are considered as safe, are the ones with the highest percentage: Germany with 24.5% and France with 25.6%. How is it then possible for nations with the lowest figures in the EU to face bankruptcy while the ones with the higher ones are not? Could it be other expenses? Let's have a look at the the employee compensation in the same countries:
While most countries have reduced the % of GDP paid to employees (and I need not remind you that since GDP has risen over the past 15 years, so the actual amount of payment may have increased) in Cyprus, Greece, Ireland, Spain and the UK the percentage rose. As for the total of the above two expenses:
Again, in absolute percentage points, France and Finland are spending the most of all and Germany is more lavish than Spain, Ireland or Cyprus. Yet the former are not facing any problems with their economies while the rest are. However, Finland and Germany are the only ones which have decreased total spending for the two aforementioned expenses over then last 15 years.

If there are any conclusions to be drawn from this analysis is that a significant rise in both employment compensation as well as social benefits has occurred over the last 15 years in the South. Although the nations in the EU-periphery were the ones with less expenditure at first, the rapid increase in benefits and compensation has undoubtedly led to increased inflation as well as a reduction of the countries' competitiveness. What should also be noted is that the total percentage for the two expenses is lower in the South than Finland and France (and in some cases Germany) which are considered as strong and safe economies. Had the sovereign debt crisis in Greece not occurred, it is doubtful whether anyone would pay attention to these numbers as these nations would all be considered a safe investment. What is noteworthy is that the data indicate that France is more prone and will succumb to a recession much easier than any other nation in the chart, if no measures are taken.

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