Wednesday, March 15, 2006

"Denn eines ist sicher: die Rente"

"One thing is certain: your (state) pension" Like all politicians, Norbert Blüm (the former German Minister of Labour and Social affairs 1982-1998) may not like to be reminded of earlier promises or campaign slogans. That job now falls on his successor Franz Müntefering who is in a hurry and now has to rapidly introduce pension reforms. Actions previously thought unthinkable or simply political suicide suddenly become very real indeed. Annual increases for retirees have been fixed at zero percent for 2004 and 2005. In 2006 they would have to be lowered because average German wages dropped (increases for retirees are tied to wages in Germany) but even Müntefering backed down from that option for the moment. Meanwhile the retirement age will be raised to 67 within 18 years instead of 24. and may even be raised to 68 for civil servants. An unpopular but financially sound move because it´s a win-win situation : people work longer and retire later, thereby reducing future claims. From 130% to 105% of GDP in fact. A welcome relief for a government that´s struggling to get its finances in order.

So its clear that Germany is making some headway in reforms. But will it work? The German electorate might see things differently in the next election. The fact that there is a grand coalition might be a blessing in disguise. There´s no significant opposition left to vote for.

source: FAZ 22 jan 2006 "Die Rente steigt nie wieder" 31 jan 2006 "Denn eines ist sicher - die Rentenkürzung"

4 comments:

Edward Hugh said...

"So its clear that Germany is making some headway in reforms."

Indeed, and Schroder probably accomplished a lot more of this than he has been given credit for.

"Meanwhile the retirement age will be raised to 67 within 18 years instead of 24."

This is hardly a dramatic move, mind you in Italy they are still arguing about going from 58 to 60.

"But will it work?", this is one point, "is it far enough and fast enough" would be another. I have the distinct impression that the reform process may be slowing down in Germany now, but it is only an impression.

This Economist article raises many of the interesting questions about Merkel:

After a disappointing election result, which forced her to form a coalition with the Social Democrats, Ms Merkel's hand was admittedly weak. But she has played it brilliantly so far, cutting a good figure internationally while calming things at home by taking on a role in tune with her sober self: that of an anti-Schröder. Whereas her predecessor often staged impressive political theatre with scant effect, the new chancellor has opted to underpromise and overdeliver.

This has become the mantra of Ms Merkel's reform method. She quickly abandoned her ambitious election
programme to advocate “small steps”, which she thinks will bring more progress than great leaps. Without
making a big fuss, the coalition has already cut some subsidies, such as for homebuyers. It has adopted a
€25 billion ($30 billion) spending programme to boost the economy. And it will start to push the retirement
age up to 67 earlier than previously planned.

This new rationality and slower pace seem to be what most Germans want.


It may be what most Germans want, but is it what they need? I know that this is an Afoe type debate, but I have the distinct impression that the coalition may also have a downside.

James Guest said...

The comment
"Meanwhile the retirement age will be raised to 67 within 18 years instead of 24."


This is hardly a dramatic move,...
may understate the lack of serious action. While there is presumably a phasing in which will begin, soon, to save some of the cost to the state/future taxpayers, one would expect increasing life expectancy to be nullifying most of the small improvement. Recent projections suggest that life expectancy will increase by a year every five years for quite some time to come. On top of that the health costs for looking after the elderly are unlikely to be reduced, especially if the cost of research and introducing new developments in health care are counted. The suggested reduction of the burden (?unfunded liabiliity) from 130 per cent to 105 per cent of GDP seems fanciful

James Guest

James Guest said...

The time noted on on my contribution/comment is out by either 5 or 19 hours. The problem does not appear to be at my end.

Edward said...

"The time noted on on my contribution/comment is out by either 5 or 19 hours."

Well we have an issue about where this blog actually is. Marcelo is in Argentina and Randy in Canada, and we hope to have some contributors from Asia, so it is hard to decide the timestamp. Anyway, I have reset at GMT.

"This is hardly a dramatic move,...
may understate the lack of serious action."

Basically I agree.

"The suggested reduction of the burden (?unfunded liabiliity) from 130 per cent to 105 per cent of GDP seems fanciful"

Definitely. Noone has any real idea, and we should stop gidding ourselves that we do.