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Pension crisis straps Europe

By John Leicester, the Associated Press via the Salt Lake Tribune
October 15, 2003

PHOTO
Two women, chat while exercising at the Buttes Chaumont park in Paris last month. Countries across Europe are grappling with the huge problem of post-World War II baby boomers nearing retirement with government coffers too low to foot the pension bill. (Michel Euler/The Associated Press)

After decades as a teacher, Francelise Madassamy envisaged a leisurely retirement in southern France , with occasional trips to Guadeloupe , the French Caribbean island where she was born.
But her dreams have been clouded by new pension cuts, the government's response to an aging crisis looming over France 's retirement system. Because of the cutbacks, she will navigate her golden years with tightened pursestrings. She will retire on about $1,725 a month, some $345 less than she expected.
"I'll have to make fewer trips -- I'm already traveling less now," said the 50-year-old who aims to stop working at 60. "I'm having to think about retirement differently."
Giving new meaning to the term "Old Europe," countries from France to Germany , Italy to Austria and beyond are grappling with a gargantuan problem: Millions of post-World War II baby boomers are trooping toward retirement, and their governments can't foot the astronomic pension bill.
For politicians, experts say, the choice is stark: Reform pensions now or risk crippling economic, social and even political costs down the line.
"The more you wait, the more difficult it becomes," said Robert Holzmann, an Austrian economist at the World Bank. Failure to reform will force cutbacks that would "hit those who have the least capacity to react -- who are the old and the very old."
Such warnings don't sit well with powerful trade unions and Europeans steeped in the idea of the state providing well in old age.
Italy 's three largest unions are calling for a four-hour general strike Oct. 24 after Premier Silvio Berlusconi said on prime-time TV that without reform, "the state won't be able to pay pensions, and the elderly won't be able to live on their pensions."
Sporadic strikes over welfare hobbled transport and schools in France this spring, and in June, retirement reforms sparked postwar Austria 's biggest strike.
Aging is a planetwide phenomenon. The number of people aged 60 and over -- 606 million in 2000 -- will hit 1.9 billion by 2050, outnumbering children for the first time in history, the United Nations estimates.
It's a problem familiar throughout the industrialized democracies, from Japan to the United States . Europe , however, is particularly challenged because it is among regions aging first, its pension benefits are sometimes exceptionally generous, and they are often financed by the current generation of workers.
Such schemes were fine when workers greatly outnumbered retirees. But that's no longer the case. After the postwar boom, birth rates plummeted. The result is that by 2040, across the 15-nation European Union, there will be just two working-age people per retiree, the World Bank estimates. That's half the current ratio of 4-to-1.
By 2000, the EU already was spending a whopping 12.5 percent of gross domestic product on pensions, the Eurostat statistics agency says, and above that average in Italy (15 percent), Germany , France , Austria and the Netherlands (13-14 percent).
For the United States , which has a generally younger population and a large immigrant work force, the figures are slightly better. As long as the country takes in about 1 million new immigrants each year, the working age-elderly ratio, now over 5-to-1, is projected to drop to just under 3-to-1 by 2040, the U.S. Census Bureau says.
Several governments have adopted or are proposing making Europeans work longer.
Today's 65-year-olds are healthier than those of 30 years ago, said Holzmann at the World Bank. "You have to adjust to reality and the realities are great: We are living longer."
Some younger Europeans are resigned to change.
"The system cannot be considered wrecked, it's just that it needs to be updated," said Giancarlo Delle Cese, a 25-year-old engineering student in Rome . "We will have less health care, and we will need to look after ourselves and our individual welfare much more."
But to others closer to retirement, like Madassamy, it's like moving the goalposts as they were about to score.
"The state decided to change the rules," she said. It "did not foresee this wave of retirees -- it made a management mistake. But we're paying the bill."


Copyright 2002 Global Action on Aging
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