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Europe: Generation gap

David Walker, The Guardian

 June 6, 2003

Mass mobilisation on the boulevards of Paris this week - half a million demonstrators, say the police; a million and a half, say the unions. Either way, trains stopped, flights were cancelled and schools shut - though there is an entirely separate dispute going on (Charles Clarke would love this) with French teachers striking against plans to "decentralise" school funding to regional bodies.

The casus belli is pension reform. A rolling programme of public sector strikes began last month to halt government plans. At issue are cuts to the civil service scheme (which includes teachers as well as train and metro drivers), to bring it in line with private sector provision. Austria, too, this week saw its biggest postwar strike over raising the retirement age to 65. Hardly radical-sounding, you might say. Here "leftwing" thinktanks are canvassing to raise it to 70. But there it's a rupture in a generation's expectations and, says the Austrian TUC, "nix geht".

France and Austria have right-of-centre governments, ditto Italy where pension reform could yet break the otherwise impregnable Berlusconi government; but pension reform is also scarring social democrat backs in Berlin. For a decade, pensions pessimists have been predicting this moment of crisis, when expectations of what can be afforded are dramatically scaled back.

The Organisation for Economic Cooperation and Development, employers' groups and neo-liberals revel in the idea of pension pain; they dislike redistributive taxation and state provision as a matter of principle. But neutral actuaries and demographers point to trends in ageing and the irreversible decline in population in Italy and Germany. With eurozone growth rates in the doldrums and not looking like they will bounce back for some time, if ever, pensions are going to take a rising share of GDP, whatever the mix of state or occupational provision. That must mean younger workers paying a lot more tax in high-tax countries - cue the "time bomb" metaphor.

In 1995, for every three people of working age, one was retired. In just over a quarter century it will be nearly one pensioner to two workers. Pensioners are also living longer. So the pensions sadists have a point; there are no painless solu tions. Saving more means consuming less and, besides, does not guarantee the GDP growth that would make it easier to transfer income to pensioners in the future.

Yet what's striking on the continent is how little the neo-Thatcherite rhetoric about rolling back the state plays. Most reform schemes (and all governments have them) would leave schemes that are solidly statist.

Take France. Changes have been made. In the early 1990s, when the centre-right was in power, France went through a downsizing exercise when private (but not public) sector pensions were indexed to prices rather than earnings. But cost projections are still shocking.

Social affairs minister François Fillon is starting with public sector pensions. He wants to raise the 37.5 years' minimum period of service - before a full civil service pension becomes payable - to the private sector norm of 40 years. Benefits would be trimmed while contributions would rise, leaving staff to pay 5% of salary. For comparison, British council workers pay 6% and in the Netherlands the maximum contribution rate for state pensions is 16.5%. Yes, French "rightwing" proposals are remarkably generous. Under them, mothers get two years' pension rights for every child and 10% of total salary is counted in for pension purposes if they have three children. The Fillon plan is redistributive and boosts rights for the low paid; Gordon Brown's minimum income guarantee offers £102 a week. The French reform offers private sector workers on the minimum wage a pension worth £138 (£155 for low-paid public sector workers). In response, French unions are split. The traditionally more moderate CFDT says the reforms are negotiable.

The government calculation is that the public at large will see the reforms as reasonable. It is a high stakes play. "Middle France" is notoriously unpredictable in its responses to crisis; unlike middle England, it has in the past leapt leftwards. In 1995 Alain Juppé's government fell when the public failed to back less radical reforms. Jacques Chirac might have stood tall as a man of principle before the Iraq war but back home he intrigues with potential successors to Jean-Pierre Raffarin, who was installed as prime minister of the Union for the Presidential Majority last year. Raffarin becomes expendable if Chirac feels protests have public backing.

The French left is no less opportunist. Had the socialist party continued in power last May, its ministers would have introduced not dissimilar reforms. There is an unmistakably reactionary dimension to the strikes, say commentators such as Jacques Juilliard: if the unions can bring down a government now, what chance would a future left-of-centre regime have if the right mobilised on, say, asylum or tax?

The Raffarin government could have been more sure-footed just as, in Austria, Wolfgang Schüssel's cabinet has a credibility deficit bigger than the ego of Jorg Heider, its former far-right member. None the less, pensions are a test of "system capacity", the way states and political parties can reconcile inter-generational interests and take the proverbial long view.

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