The Welfare State Remains Vital for European Stability and Democracy

As Europe faces a new wave of financial pressures, critics are once again portraying the European welfare state as an unsustainable drag. In France, where political turmoil has seen four prime ministers in less than two years, concerns about rising public spending – due to an aging population, early retirement plans, and generous pension systems – have reignited debates about the long-term viability of social spending. Italy has also faced scrutiny, with some commentators attributing the country’s persistent debt problems to entrenched social welfare commitments, including broad unemployment benefits and regional subsidies. As this criticism has become more widespread, even some progressive economists have warned that welfare-heavy models risk fiscal gridlock and diminished economic dynamism.

However, portraying the welfare state as the root cause of Europe’s economic distress oversimplifies a more complex reality. This narrative often obscures deeper structural issues, such as stagnant productivity, tax evasion, and uneven fiscal management. In doing so, it disproportionately places blame on the very social protections that have historically served as stabilizing forces during periods of crisis.

As Europe faces a new wave of financial pressures, critics are once again portraying the European welfare state as an unsustainable drag. In France, where political turmoil has seen four prime ministers in less than two years, concerns about rising public spending – due to an aging population, early retirement plans, and generous pension systems – have reignited debates about the long-term viability of social spending. Italy has also faced scrutiny, with some commentators attributing the country’s persistent debt problems to entrenched social welfare commitments, including broad unemployment benefits and regional subsidies. As this criticism has become more widespread, even some progressive economists have warned that welfare-heavy models risk fiscal gridlock and diminished economic dynamism.

However, portraying the welfare state as the root cause of Europe’s economic distress oversimplifies a more complex reality. This narrative often obscures deeper structural issues, such as stagnant productivity, tax evasion, and uneven fiscal management. In doing so, it disproportionately places blame on the very social protections that have historically served as stabilizing forces during periods of crisis.

The claim that strong welfare systems inherently stifle capitalism or suppress entrepreneurial vitality lacks historical and empirical foundations. If that were the case, countries like Sweden or Denmark – famous for their expansive social programs – would not consistently top global rankings in innovation, competitiveness, and business climate. Indeed, rather than undermining market economies, inclusive welfare frameworks can strengthen them by reducing instability, enhancing social mobility, and enabling risk-taking.

In this light, we should view a well-calibrated welfare state not as an obstacle to capitalism, but rather as one of its most effective enablers.

History bears this out outside. After World War II, Western Europe faced a political fault line. The region was politically fragile and economically devastated. In countries such as Italy and France, communist parties that promised to completely replace capitalism gained mass support. In the 1946 elections, the Italian Communist Party and the Italian Socialist Party together won nearly 40 percent of the vote. Likewise, the French Communist Party was rising as a political force, enjoying mass support among workers and unions and calling for sweeping nationalizations that would undermine the foundations of France’s market economy. The French Communist Party received the highest electoral support in the November 1946 legislative elections, becoming the largest party in the National Assembly with 182 seats.

In this context, the creation of the post-war French and Italian welfare state was not an act of altruism, but an act of survival. By integrating markets into a social contract based on progressive taxation, the emerging political and economic system tamed class struggle and gave capitalism and democracy a lifeline. The European social market economy became the moral and political counterweight to both Soviet communism and the fascist tyranny from which Europe had just escaped.

In Britain too, the rise of the welfare state was closely linked to the growing influence of the Labor Party and trade unions, which mobilized post-war demands for social justice, full employment, and universal protection as a counterweight to economic insecurity and radical left agitation. Thus the formation of the welfare state in Britain was also largely a strategic response to the growing appeal of socialism in the early twentieth century. As industrialization progressed and economic inequality became more pronounced, socialist movements calling for redistribution of wealth, workers’ rights, and state intervention in the economy gained momentum among the working class. In this context, British policymakers – especially in the post-World War II period – sought to anticipate radical political transformations by institutionalizing social protection measures.

Of course, Germany, often seen as the cradle of the welfare state, has adopted social protection measures for the same reason. Policies such as Medicare, sick leave compensation, accident insurance, and pensions were implemented not simply out of charity, but as a strategic effort – dating back to Otto von Bismarck, the founder of the German state – to protect capitalism from socialist upheavals. As Bismarck and his successors saw it, a strong safety net could absorb the demands of the working class and integrate them into the state-run social insurance system. Bismarck famously said: “My idea was to bribe the working class, or, if I should say, win it over, and see the state as a social institution that exists for them.”

The foundations of post-war European welfare states were also laid with tacit support from the United States. Far from resisting redistribution, Washington’s geopolitical strategy has actively, if indirectly, encouraged redistribution. The Marshall Plan injected vital capital into Europe’s shattered economies, enabling reconstruction and strengthening democracy. Although US policymakers did not explicitly advocate progressive taxation or comprehensive social programs, they recognized that social stability required more than just markets alone. A strong welfare state was seen as a practical bulwark against communist influence, a necessary compromise to secure Western Europe within the capitalist fold.

Today this logic She flipped on her head. The welfare state, once a pillar of democratic resilience, is now routinely seen as the culprit behind Europe’s economic stagnation. Criticism of neoliberalism has hardened into an established orthodoxy: generous pensions, universal health care, and free education are no longer framed not as guarantees of prosperity, but as fiscal indulgences that Europe can no longer afford. Mainstream economic discourse blames these social protection measures for distorting labor markets and straining public budgets.

However, this diagnosis misses the point. The real crises – rising inequality, faltering productivity, and rising political division – stem not from redistribution, but from the failure of global capitalism to generate inclusive growth. The financial collapse of 2007-2008, caused by Wall Street excess, exposed the fragility of deregulated markets. In the aftermath, governments abandoned austerity and turned to Keynesian stimulus to avoid collapse. The Covid-19 pandemic has only reinforced this shift, as massive public spending has been distributed once again – not to fix the excesses of capitalism, but to prevent its collapse. The irony is stark: the tools that are now being criticized as unsustainable are the same ones that kept the regime afloat.

Again, history is very important here. Supporters of market discipline and austerity would benefit from a more reflective engagement with the interwar experience. Economic downturns and fiscal retrenchments rarely lead to stability; More often than not, it embraces political extremism. In the 1930s, the Great Depression – exacerbated by austerity – created fertile ground for fascist movements. While history never repeats itself exactly, the repercussions are clear: in Europe today, where the far right is gaining more traction, the steady erosion of welfare protections has not only widened inequality but also undermined the resilience of democracy. Frustrated citizens grappling with stagnant wages, insecure work, and social fragmentation are increasingly drawn to populist and xenophobic rhetoric that promises order amid chaos.

In France, Marine Le Pen’s National Rally party has made steady gains, reaching the second round of presidential elections several times, and now leading all other parties. In Germany, the Alternative for Germany party’s popularity also rose, winning more than 20 percent of the vote in this year’s federal elections – just 8 percent behind the Christian Democrats and ahead of the center-left Social Democrats. Meanwhile, in the United Kingdom, Nigel Farage’s Reform Party UK has gained more traction, winning seats in parliament and capitalizing on economic frustrations and anti-immigration sentiment in the country. The party regularly leads the Labor and Conservative parties in opinion polls, with its support rate in the past six months ranging between 29 and 31 percent.

Further exacerbating the challenge facing Europe are pressures to increase defense spending. At Washington’s request, NATO allies set a new spending target of 5% of GDP by 2035. For European welfare states, this shift creates an obvious fiscal dilemma: How can they finance defense without destroying social programs? In Spain, for example, Prime Minister Pedro Sánchez has resisted calls to meet the 5% target, arguing that doing so would undermine the country’s social welfare commitments.

The tension is real. European governments face the challenge of retooling their economies for defense while at the same time maintaining the social safety nets that underpin democratic legitimacy. Cutting pensions or health care to fund tanks and missiles will only deepen inequality and fuel populist backlash.

But there isIt is a more promising path, one that does not retreat from the welfare state, but rather reimagines it for a new era.

Europe does not need less social welfare; It needs a more adaptive and forward-looking luxury. This means investing in human capital through digital literacy and vocational training, promoting entrepreneurship in the age of artificial intelligence and automation, taxing wealth and capital more equitably, and modernizing labor markets to support flexibility without eroding security.

The Nordic model provides compelling evidence: countries such as Denmark and Finland have shown that it is possible to combine generous social protection measures with high levels of innovation, competitiveness, and financial sustainability. Their success lies not in shrinking the welfare state, but in aligning it with the demands of a dynamic economy – through lifelong learning, active labor market policies, and a deep commitment to institutional trust and civic engagement.

The welfare state is not a relic of the past, but rather a strategic asset for the future. This idea was born not out of utopian idealism, but out of the hard realities of the crisis, designed to contain extremism, stabilize capitalism, and uphold democratic legitimacy. Today, as Europe faces new forms of economic disintegration and political fragmentation, this original goal is more important than ever.

The question is not whether European countries can afford the welfare state, but whether liberal democracy can abandon it. Restoring the spirit that once made the European social model a global standard – cosmopolitanism, solidarity, and inclusion – may be the most effective antidote to the centrifugal forces now pulling at the fabric of democratic societies on both sides of the Atlantic.