Photo by Isaac Quesada on Unsplash
President Emmanuel Macron’s stand-off with France’s trade unions over his pension reform plans are widely reported as a peculiarly French issue. That should read ‘wrongly’ reported because pensions are a looming crisis of disastrous proportions for the whole of Europe, writes Giles Merrit.
Most EU countries’ state pension schemes are unaffordable, private pensions are under so much financial pressure that they’re increasingly unsustainable, and today’s young are being warned they probably can’t retire until into their eighties.
This parlous state of affairs will come as a surprise to many, but Europe’s pensions crisis has been brewing for more than forty years. In the 1980s, demographers began to warn of the implications of falling birth rates, and finance ministries should then have prepared plans to cope with retirement costs.
Instead, politicians in the eighties talked blithely of the ‘leisure revolution’. Working hours were often cut back, and France was soon to introduce a 35-hour week based chiefly on the dubious theory that this would tackle the country’s unemployment problems.
Sow the wind and reap the whirlwind, as the biblical saying has it. Governments across Europe are being caught off-guard by the combined effects of longer lifespans, shrinking workforces, inadequate levels of savings and a widespread refusal by taxpaying citizens to accept later retirement.
The most noticeable feature of the protests in France against Macron’s plan to increase the statutory retirement age by two years to 64 is that it’s not ‘political’ in the accepted sense. The far-left and far-right are both against it, so the contested reforms seem more about fairness on the one hand and common sense on the other. People approaching retirement rightly complain that it’s unfair to change a system they’ve already contributed to, yet the financial reality is that it cannot be sustained indefinitely.
Reconciling these two views goes to the heart of what a civilised society’s values should be, and is a foretaste of debates that sooner or later will rage across Europe. Meanwhile, the hard facts are irrefutable, even if that won’t necessarily resolve the arguments around Europe’s ageing. The next twenty-five years will see a dramatic fall in the headcount of taxpaying employees and an even more striking rise in the number of pensioners.
On present trends, Europe will have 35 million fewer workers by 2050 and almost 50 million more pensioners. The over-sixties will account for about a third of the population, and the OECD forecasts that pension costs will mop up an unaffordable 12 per cent of GDPs.
Some pensions analysts calculate that two trillion euros are needed if EU member states’ deficit-ridden pension schemes are to be viable. Their worries are shared by a growing number of would-be pensioners, with over half of those polled not long ago by the Aviva private pensions giant saying they are concerned about their own retirement prospects.
The accelerating pensions crisis stems in part from misguided reductions of retirement ages in years past, and also from the speed at which Europe’s ageing is upsetting governments’ spending needs. Slower economic growth since the 2008-9 global financial crisis has reduced pension funds’ earnings; each €100,000 invested in a private pension scheme used to yield €12,000 a year upon retirement, but now that return has shrunk to €5,000.
When Emmanuel Macron warned French voters last summer that they were living “in the last days of the Age of Abundance”, he was derided by some as a prophet of doom and a defender of the rich. France’s president is nevertheless the only politician of stature who seems prepared to warn Europeans of the awkward consequences of longer lifespans and plummeting birth rates.
The fact that Macron’s second fixed term ends in 2027 no doubt emboldens him. But what his critics sometimes label his ‘technocratic’ approach should also be copied by other leaders. They, too, must publicly recognise the dangers inherent in Europe’s ageing, and their own refusal to see that younger generations are being unfairly burdened with future costs and growing debts. That they don’t is an indictment of the way political parties’ electoral interests so often trump the wider interests of European society.
The Author, Giles Merritt, is the Founding Director of Friends of Europe.