A Heavy Burden

By Theil, Stefan; Valla, Marie et al. | Newsweek International, June 30, 2003 | Go to article overview

A Heavy Burden


Theil, Stefan, Valla, Marie, Nadeau, Barbie, Newsweek International


Berlin, 2050. The once flourishing metropolis resembles a cross between an old-age home and a ghost town. The average age of its citizenry is 50. With fewer and fewer couples having children, schools and kindergartens have closed. For every retired senior living off a government pension, just one younger German is left to pay into the system. To save money and free up precious workers, the Bundestag votes to abolish the pensions bureaucracy. From now on, each retiree will be assigned his or her working-age wage slave, who'll hand over half his salary.

Is this Europe's future--an aging vampire society whose financial IVs are hitched to an ever-smaller pool of working-age taxpayers? We've all heard about the "demographic time bomb," and the pensions crisis that will hit as Europe rapidly ages. But if you think this bomb won't explode until a faraway future, think again. It already has, and the first tremors are rocking Europe today. The crippling strikes of recent weeks in France, Italy and Austria are all about pensions and retirement--the first of many battles over the distribution of tax money between young and old. In Germany, while seniors' benefits and health-care costs are busting public budgets, the country's once esteemed schools and universities have been bled dry for lack of resources, threatening the future living standard of the country's younger generation. Across Europe, working-age people are complaining about ever-higher taxes to finance a fast-growing population of ever- older retirees.

Take France, and the strikes that have produced some of the worst riots since the student uprisings of the 1960s. Beginning in 2006, more people will be retiring from the work force each year than there will be young people entering it. To stay solvent, the French government wants to require public servants to work 40 years for full benefits instead of 37.5. Unsurprisingly, state workers and their many sympathizers are fighting to retain their privileges. Never mind that doing so will increase the burden on younger workers (if taxes are raised) or future generations (if pensions are paid for by debt). Prime Minster Jean-Pierre Raffarin vows that, for once, Paris will not cave in to the strikers. "This is my duty to future generations," he told Liberation last week.

Or look at the political turmoil in neighboring Germany. Last week the German pension agency warned of a fresh 1 billion euro shortfall in the pension fund, making it likely that the payroll taxes that finance pensions will jump for the second time this year. They're already at 19.5 percent of an employee's salary--not including income taxes and other levies that are also used to pay pensions. Chancellor Gerhard Schroder last month threatened to resign, just to get the left wing of his Social Democratic Party to accept a few minimal reforms needed to keep the overburdened system going. Skyrocketing entitlements for retirees--already taking 28 percent of GDP--are a big reason why Germany can't meet Brussels' strict deficit limits and could soon face billions in embarrassing fines. Ditto for France and Portugal.

Obviously, Europe's generation gap can only grow. Life expectancies are rising and birthrates are falling around the globe--but no place except Japan is aging as rapidly as Europe. Unless Germany imports more than 500,000 young immigrants each year for 30 years, or almost doubles its birthrate, its population will shrink from 83 million today to 70 million by midcentury, while the average age rises from 41 to 49, according to a recent United Nations report. In Italy, people over 60 now outnumber those under 20--an early inversion of the traditional pyramid that has guaranteed social security for generations. The same scenario looms for virtually the entire Continent, with the EU population as a whole dropping by more than 40 million over the next 50 years. All Europe save Britain is woefully unprepared to deal with the age wave, reports a recent study by the Center for Strategic and International Studies in Washington.

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