Europe’s COBBLED squares have echoed this autumn to the sound of police sirens and shattered glass. The continent is undergoing one of those periodic spasms, when parliamentary politics struggle to handle social discontent. In France and Germany, protests began against under-investment in education. In Spain and Italy, it was a housing crisis. Across the continent there is anger at rising prices. The shared underlying problem is this: many Europeans want levels of public spending they can no longer afford while fragmented parliaments and populist politics make it almost impossible to fix the problems.
The clamour from populists is drowning out those who try to talk sense about the budgetary arithmetic. Because cost-of-living pressures are hurting so many people, ludovic Subran, chief investment officer at the insurer, notes that this mix is particularly combustible.
Allianz, a European insurer, has devised a global “social resilience index”, to measure the vulnerability of different countries to unrest. It calculates that between 2020 and 2025 70% of strikes, riots and civil unrest took place in “advanced economies…where prosperity coexists with political polarisation and weak reform capacity”.
The populist-nationalist leader has failed to wrangle a five-party coalition into agreeing on savings, for example by modestly raising VAT. Or consider the Netherlands, whose young centrist prime minister, Rob Jetten, is running the country’s first minority government since the second world war, and has struggled to secure support for his budget. Some two-thirds of Germans agree that the welfare state is no longer affordable; yet most oppose most specific proposals for cuts. By far the most worrying is France. The lower house of parliament, once dominated by big parties of the left and the right, is now split into three hostile blocs. The noisiest components are the populist-left of Jean-Luc Mélenchon and the populist-right of Marine Le Pen. This pair are also pollsters’ favourites to face each other in the run-off at the presidential election next spring. Against this backdrop Sébastien Lecornu, the fourth prime minister in three years, is trying to get a budget through parliament by the end of the year. Most controversially, these include the freezing in nominal terms of most pensions (the single-biggest budget item) and civil-service pay. The opposition has cried foul. Teachers and other public-sector workers have joined the marches. As ever, voters want public finances fixed, but not at their expense. Mr Mélenchon and Ms Le Pen each vow not merely to protect pensions but also to bring down the retirement age. Both of their parties are against the proposed pension freeze. Roland Lescure, the finance minister, insists that the government will pass a budget, even if it has to use special constitutional measures to force it through parliament.
Take Belgium, which will have a budget deficit in 2026 of 5% of GDP, and debt of 112% of GDP. On November 6th its prime minister, Bart De Wever, offered to resign over his government’s failure to agree on a budget for 2027. Last year social spending rose by 6%; it now accounts for around 32% of GDP, two percentage points above pre-covid levels. Social-security charges, levied for pensions, health care and the like, are equivalent to around 42% of gross wages; without reform these are projected to reach nearly 50% by 2040 (employers cover half these costs). A sluggish economy and Germany’s deficit-limiting debt brake mean the federal government is in a tight fiscal spot, with more than €100bn of (cumulative) consolidation needed by 2030, or close to 1% of annual GDP. It has battled each year to pass a budget ever since President Emmanuel Macron rashly called snap parliamentary elections in 2024, which shrunk his centrist governing minority. His plan, which would curb the budget deficit from 5.4% of GDP in 2026 to a still-hefty 5% in 2027, involves €43bn of savings. A poll suggests that 85% of the French think it is urgent to curb public debt, but 56% also think the pension age should be lower.
Even in fiscally responsible Germany Friedrich Merz, the chancellor, has said that the welfare state is “no longer affordable”. The climate in parliament, says Michel Barnier, a centre-right former prime minister and now a member of the lower house, is “pre-insurrectional”. “My placard is crappy, so is my pension” read one home-made sign at a recent demo in Paris. “When I say we should freeze pensions, it’s not to annoy pensioners,” he says. “Rather it’s to say: if we want to spend more on young people, others will have to pay.”
