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EU: 'Aux Barricades!' What Can Be Done To Resolve Europe's Pension Crisis? (Part 2)

The European Union countries, with their rapidly aging populations, are facing a crisis over funding of retirement pensions. As the so-called "baby-boomers" of the 1940s and '50s retire, the costs to governments of providing pensions will skyrocket. Reform is inevitable, but workers are resisting so strongly that governments are in some cases at risk of being toppled. In this second program on the subject of pensions, RFE/RL examines how to resolve the crisis.

Prague, 14 May 2003 (RFE/RL) -- Venice is sinking. The unique and beautiful city of the sea is being slowly submerged by the high tides which frequently wash along its streets, heightening the city's pervading sense of melancholy.

A generation ago, in 1969, the Italian government announced a bold plan to hold back the rising waters with a mobile barrier which would be swung across the lagoon entrance. Nothing was done, and "La Serenissima" -- the most serene former republic of Venice -- continued to drown.

But rescue is apparently at hand at last. Today Italian Prime Minister Silvio Berlusconi laid a foundation stone for the mobile dyke. So, more than 30 years later, it looks like Venice will be saved.

But there is another problem which Berlusconi, a determined and wily politician, is not so eager to face. Like a high tide, this problem threatens to overwhelm existing structures within the next 30 years, not only in Italy but across most of Europe.

It is the question of how to pay for the pensions of tens of millions of people as the populations of Europe grow rapidly older.

The huge birthrates after World War II, and subsequent sharp decline in these rates, have produced an "age wave" which is about to crest. It has been estimated that pensions consumed a third of Italian government spending in 2000, and that this could double in the next few decades as those over the age of 60 rise to make up nearly half of the population. A similar but less dramatic situation confronts most other European states, including those of Central and East Europe.

London-based analyst Katynka Barysch, of the Center for European Reform, told RFE/RL that time to tackle the crisis is short. "It's absolutely necessary for them [the governments] to get to grips with the problem. In fact you could argue that they have underestimated the severity of the problem, because if you look at any extrapolations of current trends, the current pension systems might be in trouble in as soon as 30 years' time," Barysch said.

Pensions reform is inevitable, but the European public is resisting that fiercely. It was a pensions-reform dispute with the labor unions that triggered the collapse of Berlusconi's 1994 government. France's Premier Alain Juppe likewise fell from power in 1995 in a pensions-linked debate. And the same fate could yet befall Austrian Chancellor Wolfgang Schuessel's present coalition in Vienna.

Seeking ways to avoid another bruising confrontation, Berlusconi now wants the European Union to deal with this political hot potato. Normally not a friend of pan-European projects, he said last month that the EU will "have to present a reform proposal."

In fact, this week EU governments agreed to allow private pension funds to offer retirement policies across the 15-nation bloc. Internal Market Commissioner Frits Bolkestein welcomed the decision by EU finance ministers as a "major achievement." He said the law lets workers benefit from more efficient pan-European pension funds, and contributes to defusing the "pension time bomb'." By itself however, though it may ease the pressure, the move cannot solve the financial shortfall facing the state-funded systems.

German demographics expert Juergen Fluethmann, of Bielefeld University, noted that in any event Europeans have been slow to take to the concept of privately funded pensions. "I think that as a process it will take one or two decades before the public sufficiently sees the need for private pension funding, and above all makes sufficient use of it. Because in the first place it is only useful for the very young worker. For these now aged 45 or 50, the proposition is not so interesting, because their time to save is much too short," Fluethmann said.

Fluethmann said that the simple solution of having people stay at work longer needs to be much more strongly debated. But he pointed out a contradiction, namely that while the average age of those people in work is steadily increasing, still many companies -- in Germany perhaps the majority of them -- have a policy of not hiring older employees. He said the two trends are in direct opposition to one another.

"And that must change, that must change. Just think about it: here are generations with so much experience, and great know-how, and one cannot simply ignore them. It's very important that this [human] capital, this know-how is utilized," Fluethmann said.

The French government of Prime Minister Jean-Pierre Raffarin is trying to enact modest reforms which would raise an extra $57 billion to pay for the expected shortfall in pension funding by 2020. The reform would modify rather than overturn the present system by extending the working age of all employees by several years. Without that, says Raffarin, pensions will have to be cut by 50 percent.

The labor unions, however, remain far from convinced. This week has seen major labor disruptions in France. General Confederation of Labor (CGT) leader Jean-Luc Cazettes said the government needs to put more work into its plans. "The question is also to improve the level of the lower pensions because we know very well that in the next couple of years we will face a lot of broken careers, unemployment, part-time jobs, lack of job security, and for them there should be a sufficient pension," Cazettes said.

Such wide differences of view on the issue are found throughout Europe. Time is pressing, but there appears little will to compromise.