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ΣΕΠΤΕΜΒΡΙΟΣ 2005 MODUSOPERANDI ...

AND INEQUALITY IN EUROPE
The matters of income distribution and of poverty have always been two of themost basic problems at the economic science. They are matters of such major importance for the social balance and development that -even todayconstitute the basis of theoretical discussion and fervent controversy as well as the cause of ideological debates.Apart from that, the maters of inequality and poverty are among the few issues that will prevail in the world throughout the 21st century.
he European Union of today has been absorbed by the monetary union case and the effort to meet the Maastricht criteria and attributed less importance to the issues related to inequality and poverty. Among others,the annihilation of the inequalities and of phenomena of poverty has never constituted an explicit and primordial goal of the Union. Thus, it is very interesting to examine the aspect of poverty and inequality of the 25 member states and its particular traits.
Thus, this paper will attempt to highlight the matter of inequality and
poverty. Firstly, brief definitions will be set out in order to grasp the notions of
inequality and poverty as well as the ways used to measure these phenomena
and the methodological problems that arise from their appraisal.Then,the predominant trends on the inequality and poverty process are presented
as well as the main indicators,the "financial stake", the mobility of poverty and the reasons why these phenomena keep on persisting. Afterwards,
the operation of the welfare state within the European Union and
its function in order to fight against inequality and poverty, the expenditure
of the Union, the social policy systems and the effectiveness of the social
grants in Europe will be examined. Finally,the main conclusions as well as
the challenges that might be brought about in the future will be presented.
Unfortunately, things are not clear in the field of inequality and poverty
measurement either. The means used are different every time and the attempts
are constant in order to come up with commonly accepted indicators of
measurement. All the researchers who have dealt with the specific matter ascertain that there are no perfect, unbiased and universal indicators of measurement of inequality and poverty.
More specifically, the indicators of inequality can be conceived as a measure
of brief portrayal of the differences in the incomes of the members of a
specific population (Cowell, 1995).More simply, the aim of such indicators
is to merely present, describe and incorporate all the characteristics of inmodusoperandi equality that are of interest to the researchers
in just one measurement.However, it is worth mentioning that
these indicators each time weigh differently the allocation of the measured
item that is under observation. This means that for a specific allocation of
the measured item, the income for example,each indicator will reveal a different
reality.
The urgent need to constantly improve the indicators of inequality measurement has lead to efforts to integrate to them the ratio of social prosperity
(Atkinson, 1970). This integration is not always possible or successful.
Unfortunately,prosperity is not always directly observable and the microeconomic theory demands the use of indirect methods for its portrayal
-such as income or even better consumption-despite any eventual problems
(Tsakloglou, 1993). The indicators that incorporate or tend to incorporate
the ratio of social prosperity were named normative as opposed to the "simple" ones that were named positive. The first have not yet prevailed over the latter.

Research needs do not seem to be satisfied with the use of various inequality
indicators, normative or positive,but have expanded towards the approach that derives from the implementation of Lorenz's curves. The specific curves constitute a useful tool since they provide the possibility to shed light to the existence of inequality,but on the other hand they cannot classify them hierarchically. Finally, the need to have specific norms - properties that the indicators ought to have is more than evident.
Undoubtedly, the right information and understanding of the trends of inequality
and poverty constitute an integral part of every efficient governmental
policy. To the effort to comprehend the terms of inequality and poverty, the
matter of their harmonization is added,given the fact that every nation uses its
own definitions and has shaped its own mentality in terms of measuring
these phenomena. Thus, no research-ever if we were to use complex definitions
and the latest data- can claim the absolute correctness of its findings.
Given this weakness, every approach in the development trend of inequality
fosters subjective notions as well as the possibility of an error and
therefore no one can reach a given conclusion with certainty.


Inequality

Through the long-term observation of the process we cannot mark any
specific trend. On the contrary, the situation in the industrialized countries
seems to be indistinct. By using the fluctuation of the Gini coefficient for
the income1 (Fo..rster and Pearson,2002), we can get a clear picture of the
development of inequality levels in the member states of the EU.
More specifically, by the available data we can only observe the contradiction
in the trend of inequality process, not only among states but also within a member state itself. For example,Greece manages to curtain in total the inequalities during the last 20 years, but such reduction only took place during the first decade of the research.In the years from the mid1980s until the mid 1990s the levels of inequality have not been substantially altered. On the contrary, the U.K. not only failed to curtail inequalities, but as we can observe from Table 1 (page 36)the situation got worse.
Certainly, the lack of comparable available data annuls the possibility to
extract conclusion for the total of the EU.However, two characteristic traits canbe extracted from the data of Table1.

The first has to do with the synchronization of the economies of the EU.
There is only one country that achieves to greatly reduce income inequality
(Greece), followed -in terms of effectives- by Scandinavian countries and
then by the rest. This observation underlines the differences of Economies
(the development in the income allocation to be more specific), fact that must
not be related to the will of those who possess the political authority or by the
mentality of the people.

It must be related to the existence of different structures,development prospects and potency of the economy of each memberstate.
It is worth noticing the initial inequality level for each country. For instance
in Greece, the inequalities mayhave been reduced to a large extend but
the overall inequality rate remained high. In the United Kingdom, the inequalities
have been substantially increased during the examined period and have brought the country from the medium to a high inequality level.
The second characteristic that is induced from Table 1 is that the inequality
trend was on the rise from the mid 1980s to the mid 1990s. This means
that the performance of the memberstates of EU -regarding the fighting of
the unequal income distribution- was not as successful as the performance of
the previous decade (mid 1970s -mid 1980s). The situation in the member
states of the EU has not greatly worsen during the examined period but is it
certain that the resultant has brought the countries of the European Union to
a less favorable position. This may be related, among others, to the liberal
perception that had prevailed during that period regarding the Welfare
State2, the management of the Economy and the trade-off between inequality
and development, or even better growth.


Poverty
The problem that arise during the comparison of the level of poverty in a national level is related to the existence of different needs, social institutions and mentality that have prevailed to each member-state of the EU. This may take place because in the states of the EU the needs, the culture and the standard of living have not yet been converged.

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However, this problem may be solved with the use of the relevant poverty
line, that is the line which is not referred to the purchase ability of a specific
"shopping basket"but it is ensued as percentage of the examined phenomenon.
The rationale behind the carrying out of this research is founded on the
assumption that a poor person is the one that possesses less that 50% of the
average per capita income in the county of his/her residence, bearing in mind
all the equipollence scales and the other techniques and parameters. The
conclusion of the Table 2 is that during the last 10 years the poverty rate
seems to be rather rising. In five countries the percentage has increased, in
other five did not change while it dropped only in two countries. These
observations, even if they do not show a particular deterioration of the number
of persons that suffer from poverty,cannot be characterized as particularly
encouraging for the evolution of poverty which persists on existing and
shows remarkable resilience to the governmental policies. In a United Europe,
where the improvement of social prosperity and the reassurance of a better and more just future for all citizens without exception constitutes the reason of its foundation and existence,the failure to tame poverty may -under certain circumstances- be considered by some euroskeptics as a sign of weakness and may even question the values, capabilities and the sense of survivor of Europe in the future.
The tendency to increase the poverty percentage in the European Union has revealed that the number of poor people in Europe remains stable,if not increased, but this is not sufficient so as to present an overall picture of the current situation in Europe. In order to establish the poverty tension,one should firstly examine the size of the poverty gap. Thus, the smallest gap is observed in Austria, Finland, Great Britain and mainly Ireland while the worst performances are observed in Italy and Sweden. In order to have a better understanding of the poverty gap it is unlined that in Austria and the Netherlands more people became poor (the poverty percentage was increased from the mid

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1980s to the mid 1990s) but at the same time their incomes were close to the 50% barrier of
the average per capita income (the poverty gap was reduced). The exact
opposite took place in Belgium.
Finally, it is worth mentioning that the people who are currently poor are not
necessarily going to be poor for the rest of their lives. The poverty status is dynamic in the sense that it changes through time.
Thus, the persons that are currently considered as poor were not necessarily
those of the mid 1990s. One fine example is that of a two child family where the father is a pensioner and both children are studying. Ten years later, those children,who will still be living with their parents,will be working and contributing to the household income. Thus the household will be no longer poor.

Highest Levels
In an attempt to extract as many safe conclusions as possible regarding the level of inequality and poverty in the EU countries one should use a cluster of indicators.
Table 3 shows a clear picture of the inequality and poverty levels in the member
states in the late 1980s. The data may be characterized as obsolete or at least not recent but they are indicative of the inequality and poverty levels, as well as the levels of prosperity and social aberration.
From Table 3 one can easily conclude which country wins the pejorative
title of the State with the highest levels of inequality and poverty in the EU Greece has a negative first place and it is followed by the other "usual suspects"
that is Italy, Portugal and Spain.
In addition, a negative performance is observed in Ireland while the data are
not flattering for the UK either. On the contrary, Luxembourg, Belgium and
Germany had a good performance in terms of inequality and poverty. In reality,
if the North had the same inequality and poverty percentage as the South
things would have been much worse.
Fortunately, the South is characterized by close family ties that constitute a solid
safety net against issues of exclusion and poverty. On the contrary, the trade
unions of the South, due to the agricultural and moderate industrial orientation
of its economy, were not organized and powerful enough to seek a better
standard of living as opposed to the industrialized states of the northern part
of Europe.
Inequality that prevails in the countries of the EU can only be alarming. Europe
of the past had a negative image regarding the inequality level. The indicators
in Table 4 (page 38) are far from flattering. Thus, Italy, Greece, the UK have a more uneven income distribution while Belgium, Denmark and France perform better in that matter.
The picture in the late 1970s-early 1980s is not substantially different than the one presented above in Table 3.One other indicator used to measure inequality in the income distribution is the indicator S80/S20. This indicator is used by Eurostat and portrays the portion of the total incomes of the richest 20% of the population as a modulus of the poorest 20%. In brief, it measures how many times greater is the income of richest 20% of the population in relation to the poorest 20%. This statistic is considered to be the most "vulnerable" for two reasons.
The first reason has to do with difficulty to accurately define the extreme values, the highest and the lowest income; especially we take into account the secret incomes (for tax purposes). The second reason is related to the method of measurement. Such measurements use data from the Panel Sample Attrition, fact that may cause erroneous estimates, since the participants in the sample may leave. The experience has shown that from the sample usually depart the
"extreme" participants, that is either the very rich or the very poor and thereinafter a calculating has to take place in order to compensate the gap,
without that being always accurate. Bearing in mind those observations
we are able to accept -with some reservations- Table 5 (page 38) as a reference for the inequality level between the richest and the poorest members of a society.
Table 5 shows the inequality in the income distribution for the years 1995-2000 in the EU. It is evident that Portugal, Greece and Spain have the highest indicators while countries such as Denmark,Germany, the Netherlands and the usual suspects Sweden and Finland are characterised by a fairer distribution. This fact consolidates the arguments for a clear distinction of the Union in a developed North and a less developed South,even on issues of social sensitivity. It is worth mentioning that, with certain reservations,the South begins to move fast towards the reduction of these differences.
Social Benefits
The European Commission is particularly sensitive to issues related with in-

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Amongst the nation-states there are remarkable differences in terms of the intensity and duration of these phenomena.


Despite the differences, all researches observe that inequalities have
worsened in the 15 EU nations from the mid 1980's to the mid 1990's. Similar
case in term of poverty. The resultant tendency in the EU was rather augmentative.
The most negative performances in terms of inequality and poverty levels
amongst the member-states of the EU were observed in Greece, Portugal,
Italy, Ireland and Great Britain. On the contrary, Belgium and the Netherlands
have the best performances. It is worth mentioning that inequality seems to be
more resilient over the years. Certainly,the situation in the EU cannot be considered as a rather worrying one but in some countries (in the Mediterranean)inequality seems it is there to stay.
In terms of poverty the situation is not substantially different. Poverty,though constantly reduced, has the same preferences -in terms of nation states- as inequality. Thus, the usual suspects, the Mediterranean countries,Great Britain and Ireland are at head in this negative race.

The data of poverty mobility confirm this negative picture of the Mediterranean and the British Isles.
The reasons of resilience of these phenomena are numerous. Amongst them are included the uneven income (from paid labor) and profits distribution,inequalities in education, the use of the taxation system and of transferential payments, the number of employed in each family, the size and its composition as well as age, education qualifications, the type and intensity of labor, the monetary crises etc.
An important role in the citizens protection from the risk of inequality and poverty plays the state. Firstly, it can guarantee the minimum pension and the minimum guaranteed income.
According the existing data, Denmark and Luxembourg protect their citizens
better while the Mediterranean countries are once more a failure.


Social Cohesion
The member-states of the European Union pay enough for social protection
expenses, judging from the appropriate preconditions. However, there is a tendency to reduce these expenses in the future, without the respective reduction of needs. This was dictated to a certain degree by the Stability and Development Pact of the EU and the monetary insertion, despite the augmenting demographic-insurance problem faced by many member-states, the low development rates or the augmentation of unemployment rates.
The differences in the appearance of inequality and poverty within the 15 member-states of the Union are greatly due to the adoption of various social
policy systems. It is true that these systems affect the effectiveness of the social
protection net and hence the prosperity of EU citizens. The adoption of
common social policy cannot, at present-solve this problem. The circumstances
are not appropriate in order to make this step. It is worth mentioning
that the social benefits granted by the member states are considered to be
satisfactory, in the sense that they should exist in order to relieve from poverty and to reduce inequalities despite their imperfections.According to the pessimists, the devolvement so far and the resurgent tendency do not leave much hope for the future.Europe seems to imitate the U.S. regarding issues that are indirectly related to inequality and poverty. It is indicative that in 1970 the average annual compensation of 100 top executives came to 1.3 million $ per year -39 times above the wages of a worker- while in 1998 it came to 37.5 million $ per year, 1000 times more the present wages of the average worker (Kruegman, 2002). Europe starts following the U.S. not only in terms of these extravagances but also in the organisation of labor marker and in the overall mentality which turns towards neo-liberalism. The steam engine of European development, Germany, already shows the first signs of conversion from the once successful model (Dore, 2000).At the same time Europe should fight against low development rates, low employment rates, and for restructuring of its social systems and for the adherence to the demands of the Stability Pact.
The final conclusion is that the EU has not yet suffered from extreme inequality
and poverty phenomena. On the contrary its position in the global scale may be considered as enviable.Moreover, the fight against inequality and poverty was never among the explicit commitments of the Union. The question asked for the future is how much impotence the Union is going to accord to social cohesion and if intends to take drastic measures in the future. The abolition of the Stability and Development Pact may constitute the first step towards a Europe that is more sensitive to social needs. It also may be the result of a political pressure to the governors of the powerful states that wanted to improve the economic situation of their country.


Notes
1 In the specific research, as income we understand
the net profits deriving from paid
labor such as salary, net business profits,
free lance worker and the social grants after
the deduction of tax.
2 The Conservative Prime Minster of the United
Kingdom, M. Thatcher (1979-1990), and
the liberal policies that she pursued in relation
to the trade unions and the welfare
state may, to a large extent of course, explains
the broadened inequality in that
country.

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