By Carter Dougherty In fits and starts, European governments have sought to respond to the fiscal time bomb posed by the alarmingly fast-growing pool of retirees on the Continent. But maintaining the momentum to keep the pension systems afloat is proving difficult these days.
The rising costs for many everyday goods and services and a squeeze in living standards among older workers and the elderly are fueling a political backlash that has led some capitals to postpone measures or even suspend ones already passed.
"Right now we are living in a time of great populism," said Reiner Klingholz, director of the Institute for Population and Development in Berlin. Yet if European governments do not stick to the changes they have made - and keep the momentum going - "then it will cost."
Europe faces much stronger demographic pressures than the United States. For that reason, European governments have managed in recent months and years to push through changes intended to keep the system solvent, including trimming benefits, even as Washington has left the government-run Social Security system intact since an overhaul in the early 1980s.
State payments in Europe are also being supplemented in some countries by private savings plans - the biggest break with tradition since public pensions were created more than a century ago in Germany.
Lately, however, there have been signs of retrenchment:
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Italy passed a law to raise the retirement age, but then postponed its effective date.
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In France, an unpopular president, Nicolas Sarkozy, is pushing through relatively modest changes in a country where policy has often been made or broken on the street.
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The German government recently backtracked on revisions passed only a few years ago and, with an eye on elections next year, is considering rolling back more.
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Helmut Polzer, a retired real estate developer from the Munich area, illustrates why even maintaining measures already enacted is proving tough.
In a fit of rage last August, he wrote his first letter to the editor in 50 years of reading his local newspaper, complaining how German politicians were turning pensioners into "paupers." Almost as an afterthought, he suggested a solution. "I would be happy if the millions of pensioners - our numbers are growing - and all citizens disadvantaged by politics finally found their way into their own political party," Polzer wrote to the paper, Munchner Merkur.
Weeks later, Polzer, 70, was presiding over a meeting to create the Pensioner Party, which plans to field candidates in regional elections this autumn on a platform of creating a more generous pension system. While still a nascent operation, the Pensioner Party's message resonates broadly with voters in Germany and across Europe.
With a higher birth rate and greater immigration, the United States faces a less acute problem with government pensions, despite periodic flare-ups over Social Security and fears over the long-run fiscal stability of the pension systems established for state and local government workers. Moreover, U.S. voters have long punished politicians who threaten to curb their retirement benefits. The Social Security system is widely known as the electrified "third rail of politics" for that reason.
Most of the costs of an aging U.S. society have to do with skyrocketing health care costs - far less of a problem in Europe. The widespread use of private pensions and employer-based savings plans also eases the pressure on taxpayers to pay retirement costs.
But in much of Europe, the need for change is more pressing.
State pension costs as a percentage of gross domestic product are edging steadily upward in France, for example, and will reach 14.8 percent in 2050, from 13.3 percent today, according to the European Commission. That would put French pension costs on the high end of the European average. It would also be more than twice as much as the portion of the U.S. economy devoted to federal retirement programs.
A measure introduced in 2003 by Francois Fillon, then the French employment minister, now prime minister, required public sector workers to serve 40 years before getting a full pension. But the rule was riddled with exemptions for train operators, electricity and natural gas workers, and other groups.
Most of those loopholes were closed last autumn after those affected were promised higher pay to end a nine-day strike. Now Sarkozy wants to extend the required working time to 41 years by 2012 for the entire French work force, though without raising the formal retirement age from 60 as employers have demanded. Opinion polls show that a majority of French people back the 41-year-rule, but are also opposed to increasing the retirement age.
Germany has gone farther than France, probably because it is under more intense demographic pressure. More than 15 percent of its population is now older than 65, about twice the proportion in France. In addition, during a long phase of high joblessness, German politicians had been under pressure to reduce employer social security contributions to cut the cost of creating jobs.
In 2004, Gerhard Schrder, then the chancellor, threatened to resign if the Parliament did not pass his pension package, which curtailed annual increases with a formula that took into account demographic changes and tax incentives for private pension savings.
Last year, the current government under Angela Merkel also raised Germany's official retirement age to 67 from 65.
But with national elections coming up next year, the German parliament suspended the Schrder formula for one year. That had the effect of doubling the 2008 increase in pension payments to 1.1 percent - hardly a windfall but clear evidence of the constant pressure politicians are under, even after new laws are passed. The decision took place against the backdrop of a debate in Germany about rising poverty among the elderly, a small figure now but one that is expected to rise as pensions shrink.
"They did a very good job of putting the system on a sensible financial track," said Monika Queisser, a pension expert at the Organization for Economic Cooperation and Development. "The problem now is the social sustainability of what Germany has adopted."
Neighboring Belgium may be a harbinger of what awaits Germany, Europe's largest economy: The National Pensions Office in Brussels forecasts that by 2016, 40 percent of Belgians over 75 will live below the poverty line, in part because of lower pensions.
One possibly offsetting factor could be the surprising success some countries have had with the introduction of private pensions.
Sweden created a system in 1999 that siphoned off 2.5 percent of a worker's gross income - money that used to go to state plans - and invested it in privately managed stock and bond funds. Employees choose the funds themselves, based on their appetite for risk.
Since then, East European countries including Bulgaria, Romania, Poland and all the Baltic states, as well as Germany, have adopted similar programs.
"What you pay in is what you get, so that creates an incentive to work," said Mika Vidlund, an analyst at the Finnish Center for Pensions in Helsinki. "And it makes the system financially stable."
Germany's system of tax incentives for people to save for their own retirement, got off to a slow start in 2001. But now some 11 million Germans have bought into the plan, topping expectations.
Polzer, the founder of Germany's pensioners' party, is even campaigning in favor of extending it.
Thomas Langer a professor of business at the University of Munster, who studies pensions, said, "I have no doubt that in the last five years there has been a serious change in mentality in Europe." He added, "It would have been nice if we had tackled it earlier though."
Indeed, for those trying to put pension systems on a sounder footing, time is what they fear the most.
Vincenzo Galasso, a professor at Bocconi University in Milan, was co-author of a popular book in Italy that pictured a grotesque- looking figure devouring young bodies. The cover's reference is to the mythical King Cronos, who swallowed his offspring following a prophecy that one would depose him. Italians are not eating their young, but they are, in Galasso's view, fleecing them. After agreeing to raise the retirement age one year, to 60, by 2009, Italy backtracked, putting this change off until 2017.
The median-aged voter in Italy is around 46 years old, but will be in his or her late 50s by midcentury, Galasso says. Unless the retirement age rises further - and soon - more Italians will have a vested interested in opposing any changes that might curb benefits.
"We're on a continuum where reform becomes harder and harder," Galasso said. "I hope that there is no point of no return."
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