Competing models for the future of welfare in Europe
Europe’s postwar welfare model is straining under crises, demographics, debt, eroding trust and the pressures of technological transformation.
In a nutshell
- Repeated crises expanded welfare spending, fueling debt and deficits
- Aging populations, precarious work and low birth rates undermine stability
- Paternalistic reform or surveillance-driven efficiency are on the horizon
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Born from the wreckage of World War II, the European welfare state promised citizens economic security, social justice, solidarity and dignity. And for over half a century, it largely delivered. As Europe rebuilt, generous social protection systems went hand in hand with booming economies. Healthcare, pensions, family support, unemployment benefits and a wide range of other social services underpinned one of the longest eras of peace and prosperity the continent has ever known.
Fast forward to today, and the picture looks very different. The welfare state is cracking under its own weight. Once an engine of growth, it is increasingly viewed as a drag on the economy. What went wrong?
A long cycle of global crises offers part of the answer. Since 2008, Europe has been battered repeatedly: financial crash, sovereign debt crisis, Great Recession, migration crisis, Covid-19 pandemic, Ukraine war, soaring energy prices, climate shocks. Add to that growing geopolitical risks, trade tensions, low birth rates and a relentless cost-of-living crisis.
Today, social protection accounts for nearly 40 percent of all public spending across the European Union.
Over the past 75 years, each time a crisis appeared, the welfare state stepped in doing what it was designed to do: cushion the blow. But that resilience comes at a price. Today, social protection accounts for nearly 40 percent of all public spending across the European Union. That is around 3.3 trillion euros ($3.9 trillion) a year, almost 20 percent of the bloc’s gross domestic product (GDP).
Debt, deficits and denial
In several European countries, welfare spending is largely debt-driven, pushing governments into dangerous territory. As of mid-2025, Greece’s debt-to-GDP ratio reached 152.5 percent, Italy’s 137.9 percent, Belgium’s 106.8 percent and Spain’s 103.5 percent – all far above the EU’s recommended ceiling of 60 percent.
Perhaps the most troubling case is France. Long a showcase of the European welfare model, it now faces a deep political crisis fueled by spiraling public expenditure. By 2025, French public debt had surged to 3.35 trillion euros, or 114 percent of GDP. The government’s annual budget was running a deficit of nearly 6 percent, and the country’s pension system faced a 23 billion-euro shortfall – up dramatically from 15.3 billion euros the year before.
The balance is shifting: More retirees are claiming benefits, and fewer workers are paying into the system.
In a country where the total fertility rate stands at 1.62 children per woman, down by 21 percent in 15 years, the pay-as-you-go pension system (today’s active workers directly covering current retirees’ benefits) is becoming unsustainable, raising questions about the country’s fiscal solvency. Although a significant pension reform was passed in 2023, Prime Minister Sebastien Lecornu recently suspended it under the threat of a no-confidence vote.
Once again, short-term politics have triumphed over indispensable long-term reform. Rather than confronting the need to curb public spending, French lawmakers have succumbed to what can only be called fiscal madness. In their heated budget debates, even outright confiscatory taxation is no longer taboo. Some experts now believe fixing the welfare state in France appears electorally impossible.
Reversible and irreversible changes
Despite record levels of spending, social outcomes remain disappointing all over Europe. Nearly 94 million Europeans – roughly one in five – are officially classified as at risk of poverty. Even middle-income households are feeling the strain. According to Eurostat, 45.4 percent of Europeans report having difficulty making ends meet, especially young people, single parents and pensioners.
Behind these figures lie deep, long-term changes. Europe’s welfare systems were designed for the postwar era – a time when societies were young, jobs were stable and well-paid, and growth felt endless. That world has gone. Today, steady growth seems out of reach as several global trends converge.
One of the biggest factors is what British economist Charles Goodhart called the “great demographic reversal.” Europe is aging fast. Already more than one in five EU citizens is over 65. That group will grow from 97 million people in 2024 to nearly 130 million by 2050, putting enormous strain on pension and long-term care systems. People are living longer but having fewer children. Thus, the balance is shifting: More retirees are claiming benefits, and fewer workers are paying into the system.
The classic welfare model was built for full-time jobs, steady careers and predictable retirement ages. Today, many people work part-time, freelance or move between short-term contracts. Careers are less linear; work is more precarious. People contribute less and for fewer years, while relying on social protection for longer. The math of the welfare state no longer adds up.
Immigration could help counter Europe’s aging population. But it has become one of the continent’s most divisive issues. Populist and far-right movements are fueling anti-immigrant sentiment, and in several countries their influence on government policy has made “nationals first” welfare rules more common.
Some EU governments pursue selective immigration strategies, seeking highly skilled workers from abroad while restricting asylum and family reunification. This approach raises its own moral and economic dilemmas, draining talent from the developing countries that can least afford to lose it. The result is policy paralysis. Europe oscillates between openness and closure, with decisions often dictated by the momentary political mood rather than long-term demographic necessity.
At the same time, technology and the green transition are transforming the nature of work. While automation and artificial intelligence boost productivity, they threaten millions of jobs and employment tax revenues across all sectors. And as welfare states rush to absorb that new shock, they risk smothering the very growth that digital innovation could ignite.
Erosion of trust
The welfare state has faced its share of crises before, but today it increasingly appears to be part of the problem rather than the solution. Public trust is fading – not only in the system’s performance, but in the intentions of those who manage it. Younger generations wonder whether the state will still be there for them decades from now, or whether they are simply funding a model built for a bygone world. Older voters, in contrast, cling to the protections they were promised, increasing political pressure to keep benefits unchanged even as fiscal realities become more glaring. The resulting generational rift, layered over growing insecurity and polarization, is fracturing the social contract that once sustained the European social model.
Moreover, welfare systems are plagued by structural inefficiencies. Many are notoriously opaque, bureaucratic and difficult to navigate, especially for the people most in need. Benefits are often misallocated: Subsidies flow to those who do not really need them, while the most vulnerable can fall through the cracks.
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Social fraud and administrative errors add another layer of complexity. Though their scale seems hard to quantify amid conflicting reports and political statements (estimates range from 85 billion to 230 billion euros per year at the EU level), it is clear that they impose a significant financial burden on welfare states.
Then there are a number of legal loopholes, often ignored by policymakers themselves, that quietly drain public coffers. Take for example the 1995 agreement between the United States and France: It allows American retirees who move to France to benefit from the country’s universal health coverage − one of the most generous in the world − completely free of charge after just three months of residence. These retirees have never paid into the French social security system, and to top it off, they are also exempt from income tax on their American pensions in France.
Perhaps the most damaging flaw of many welfare systems lies in the perverse incentives they create, particularly for people with modest incomes. Why get up in the morning to do a low-paid, physically demanding job, if you can receive nearly the same amount in benefits by staying home? In many EU countries, a disproportionately high “tax wedge” (the gap between what employers pay and what workers actually take home after taxes and social contributions), discourages work, eroding both motivation and fairness.
Scenarios
Europe’s welfare states stand at a crossroads. The choices governments make in the coming decade will determine not only their fiscal sustainability but also the nature of social citizenship itself. Three broad scenarios emerge.
Unlikely: A minimal welfare state
In this first scenario, the welfare state retreats dramatically. Confronted with mounting debt and an urgent need to invest heavily in other priorities – notably defense – governments choose to radically cut benefits, trim entitlements and contract out services such as pensions and healthcare. Reforms also seek to clear away layers of bureaucracy and needless procedures. The social state’s role shrinks to providing last-resort assistance to the most vulnerable, while private insurance and personal savings take over for others.
A stripped-down welfare state may be the only route to long-term fiscal stability for Europe’s most indebted economies. However, welfare austerity risks inflicting deep social pain in the short to medium term. Politically, the consequences would be explosive, and the backlash from citizens accustomed to generous state solidarity tremendous, especially in societies where the welfare state is woven into national identity.
For that reason, a minimalist state fostering self-reliance and market-driven entrepreneurship remains the least probable outcome for European nations.
Likely (medium/long term): A paternalistic welfare state
In this alternative scenario, governments implement so-called“social investment” and“life-course” policies. Rather than dismantling social protection, they modernize it. The focus shifts from “passive income support” to “active inclusion.” Early childhood education, lifelong training, affordable housing and promotion of a healthy lifestyle are among the priorities. Citizens will have to adapt, retrain and remain economically active across longer, more fragmented careers.
Here, the welfare state becomes a “life partner” rather than a “safety net” – supporting individuals through all the key transitions of their lives, while nudging them toward responsibility and productivity.
Such a gently paternalistic vision of society resonates with European Commission President Ursula von der Leyen’s calls for a Social Union grounded in shared mechanisms – including unemployment reinsurance, cross-border pension portability and joint investment in childcare and education. Yet in today’s fragmented Europe, the prospect of a truly unified, or “single,” welfare framework still remains a long way off.
Likely (short term): A surveillance welfare state
As governments fail to curb debt and excessive spending, and taxes stifle growth, for many nations the only path left is to boost the efficiency of redistribution. Yet this comes at the cost of turning the welfare model into a system of pervasive digital surveillance, where contributors and beneficiaries alike are more systematically monitored.
On the contributors’ side, authorities tighten their crackdown on tax evasion and avoidance. The tax base widens – new indirect, green, sin, property, financial, inheritance, wealth and other Zucman-style taxes join an already formidable arsenal. The tax focus shifts from labor to capital and wealth, under the banner of “smart fairness”: Everyone must pay their share, and technology will make sure they do.
On the beneficiaries’ side, surveillance runs even deeper. Welfare becomes automated, data-driven and conditional. Yet conditionality soon morphs into moral control: The drive to “activate” those able to work and repress free-riders risks marginalizing the vulnerable, while those unable to adapt are cast as failures or beggars.
Eligibility checks, risk scoring and fraud detection are increasingly delegated to algorithms cross-referencing vast datasets – employment records, residence histories, family and community ties, even traces of digital behavior. In this scenario, citizens are assessed continuously, their social rights mediated by machine learning. The system gains efficiency and consistency, but at the cost of growing opacity and asymmetry: Those who design or interpret the algorithms wield new forms of power over those subjected to them. Welfare offices gradually evolve into digital management hubs, where the line between social protection and social control becomes less clear.
The Danish case illustrates both the promise and the peril of this transformation. In 2024, Amnesty International accused Denmark of an “Orwellian shift” in its welfare administration. Its report, titled Coded Injustice: Surveillance and Discrimination in Denmark’s Automated Welfare State, documented how dozens of algorithmic models probe ever deeper into citizens’ private lives to detect fraud or irregularities. Amnesty warned that such systems risk “targeting, rather than supporting, the very people they were meant to protect.” One welfare recipient described the experience as “sitting at the end of a gun – we are always afraid.”
Denmark’s experiment shows how easily the drive for digital efficiency can blur into digital suspicion. The same tools that promise impartiality and cost-effectiveness can reproduce bias, disproportionately flagging migrants, low-income families or people with disabilities. The result is a subtle but significant shift: from a welfare ethos grounded in trust and solidarity toward one governed by verification and control.
Yet for fiscally constrained governments, the appeal is obvious. Algorithmic surveillance promises to reconcile austerity with fairness – to spend less while ensuring everyone pays their due. Many citizens, too, accept this logic, provided surveillance targets “others.” The deeper question, then, is not technological but ethical: Can a welfare state built on constant data scrutiny still embody the ideals of mutual trust and social dignity on which it once rested?
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