Why is Spain’s generous welfare system seen as a problem?

The extract mentions that Spain, fearing the social consequences of high unemployment as a result of the recession, has opted to increase unemployment benefits. This means that annual government spending on unemployment benefits now account for over 3% of Spain's total GDP. That figure is huge when put in context; especially when we consider that the stability and growth pact (as discussed in an earlier post) allows no more than a 3% total spending deficit annually.

This is certainly seen as a rather large problem, as high levels of government spending are difficult to sustain, as they have to be financed with lots of borrowing. Similarly, the money could be spent on something else, such as healthcare (opportunity cost is a common criticism of any government spending).

Furthermore, a generous welfare state often leads to dependence of people on those benefits, as well as a reluctance to find work - known as the unemployment trap. The unemployment trap is a big problem for governments as the dependence it creates can easily lead to longer-term unemployment problems, with people becoming used to being unemployed, as well as becoming unemployable as they lose their skills, along with the routine of getting up to work etc.