While presidents and prime ministers across Europe are cajoling parliaments and persuading voters to approve retirement age hikes and benefit cuts for retirees, Germany is taking a step in the opposite direction.As part of a deal to cement her party’s coalition with the center-left Social Democrats, German Chancellor Angela Merkel’s new program includes a provision to lower the retirement age for some workers and contribute more money to retiree pensions. The measure is popular with voters and the country has enough money to make it feasible—at least in the short-term. Yet as the WSJ notes, there are serious questions about whether this is a smart move in the long-term, particularly for a country that has aged so rapidly:
Subsidies for the public pension system already take up 28% of spending in Germany’s federal budget. By adding to those costs and possibly forcing up payroll taxes, more-generous pension rules threaten to hurt employment, while leaving less money available for investment in education or infrastructure that economists say Germany badly needs. […]Germans, whose median age is 45, are the oldest population in the European Union. Germany’s birthrate of only 8.4 per 1000 inhabitants is the EU’s lowest.By 2050, Germany is expected to have only 1.5 economically active people per retiree. That would require Germany to raise its retirement age further to make the pension system financially sustainable, the Organization for Economic Cooperation and Development said in a report published in November.
It’s all too common to see this: in good times, bureaucrats opt to pander for votes rather than planning for the lean years that are sure to come one day. Germans like to think of themselves as the responsible Europeans, but even they are prone to this kind of behavior.And more broadly, this just doesn’t look very good in the context of Europe as a whole. In countries like France, Spain, and Portugal, political leaders are trying to push through politically difficult cuts in the face of waves of protests and mass unemployment, in large part under German pressure. This is a tough sell as it is, and it will be even tougher if voters see that the Germans aren’t even taking their own advice.