Germany just lowered some retirement ages and raised pension spending. For real.
posted at 8:01 pm on December 17, 2013 by Erika Johnsen
Evidently, this was all apart of same grand scheme so that Chancellor Angela Merkel, embarking on her third term, could form the German equivalent of a supermajority with a united coalition pact between her own center-right party and the Social Democrats — but, suffice it to say, I have the gravest doubts that the juice will be worth the squeeze on this one. The WSJ reports that, as she signed the 185-page program her coalition government will seek to implement over the next five years, she promised “solid financing, secure prosperity, and social security” — but the whole policy is already taking heat for costly long-term measures included high pension spending and lowering the retirement age for certain workers.
Opinion polls show the plans are popular. But economists warn that encouraging earlier retirement for some workers would add to the burden on public finances of Germany’s fast-aging population, while pushing up payroll taxes that weigh on jobs and workers’ incomes.
Earlier retirement for longtime workers was one of the concessions that Ms. Merkel’s conservatives had to make to convince the left-leaning Social Democrats to become her junior partner in a “grand” coalition. …
Offering “pensions at 63 collides with what Germany has recommended to other European countries,” said Mr. Hüther…
“The coalition agreement is nothing but a gift for the elderly and pensioners at the expense of those who are paying into the pension system,” said Bernd Raffelhüschen, economics professor and a specialist on pension systems at the University of Freiburg. “For intergenerational justice, this is the most stupid thing that could have been done.”
Germany’s currently strong economy and high employment level means the country’s social-security system can carry the extra costs in the near term without requiring higher payroll taxes. But Mr. Raffelhüschen said that in long term, levies on workers and employers that fund pensions will have to go up by around two percentage points to pay for the government’s generosity.
Germany has a median age of 45 and is already the oldest population in the European Union, and by 2050, Germany is projected to have only 1.5 economically active people per retiree; but perhaps the cherry on top of the whole thing is the minimum wage of $11.55/hour that will go into effect in 2015. I know Germany prides itself on being Europe’s fiscally responsible, economically well-turned-out older sibling, but this looks an awful lot like succumbing to the demands of the exact same forces that have so many other European countries struggling to emerge from beneath the shambles of years of wildly overly-generous and unrealistic public welfare systems. It’s only a matter of time before all of Germany’s workers start demanding a lower retirement age, and so on and so forth, and it doesn’t exactly smack of the right example they’ve been trying to set for the rest of Europe.