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Practice What You Preach?
The Folly of Germany's Plan to Lower Its Retirement Age

While most of Europe’s leaders are struggling to push austerity measures through their legislatures, the continent’s “engine of growth” is moving in the opposite direction. German Chancellor Angela Merkel’s new coalition government plans to lower the age of retirement and beef up retiree pensions. These plans have at least one prominent German politician very worried. The FT reports:

Speaking to national paper Die Welt, Günther Oettinger, German EU commissioner, said that Germany’s plans to allow longer-serving employees to retire at the age of 63 sent the “wrong signal” at a time when countries like Greece, Spain and Portugal are struggling to introduce tough labour market reforms. […]

Warning that the eurozone’s largest economy faces a skills shortage, the EU energy commissioner said that politicians should start to talk instead about a retirement age of 70 and help equip people with professional training for a longer working life.

The optics of this proposal are especially bad, considering the measures being pressed on other Eurozone members:

The eurozone debt crisis and an ageing workforce has seen some of the harder hit nations forced to take tough action. Greece and Spain have agreed to raise their retirement age from 65 to 67, while Portugal recently pushed its retirement age up to 66.

This is a good call from commissioner Oettinger. He can see the blindingly obvious point we made back in December when Merkel put her signature on the plan. Early retirement and fatter pensions will be popular among voters, especially in Germany, which has the oldest population in the EU, as well as the bloc’s lowest birthrate. But it’s a terribly short-sighted strategy, for the same reason. Germany’s skewed demography means that pensions and early retirement will put a tremendous strain on its economy.

Politicians have a remarkably short memory, as Merkel’s retirement age proposal demonstrates. Sure, Germany may be able to afford this now, and maybe five or even ten years from now. The real test for pensions comes when the going gets tough, when economies start slowing down, and especially in Germany, when whole generations start retiring to live on pensions without a like-for-like replacement in the workforce.

But who needs long-term stability when there’s pandering to be done?

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