Rescue Mode

Between now and 2050, the number of French pensioners will increase by 47% while the number of folks under 60 will remain the same. The May 22^nd New York Times tells us why the social safety net, so carefully constructed over decades… all over Europe, but particularly in France… is failing fast: “Gross public social expenditures in the European Union increased from 16 percent of gross domestic product in 1980 to 21 percent in 2 005, compared with 15.9 percent in the United States. In France, the figure now is 31 percent, the highest in Europe, with state pensions making up more than 44 percent of the total and health care, 30 percent.

The challenge is particularly daunting in France, which has done less to reduce the state’s obligations than some of its neighbors. In Sweden and Switzerland, 7 of 10 people work past 50. In France, only half do. The legal retirement age in France is 60, while Germany recently raised it to 67 for those born after 1963…

“According to the European Commission, by 2050 the percentage of Europeans older than 65 will nearly double. In the 1950s there were seven workers for every retiree in advanced economies. By 2050, the ratio in the European Union will drop to 1.3 to 1.” Anybody see a problem here? Think maybe the United States is also facing this “graying” effect? So let’s see, nobody will ever be able to retire again? This is a notion that is not too far from reality unless we figure out how to extract more money while folks work to allow them to retire when they can’t. And realistically, as healthcare improves and people live longer, it seems pretty obvious that retirement ages are of necessity going to rise. Seventy may be the new fifty… at least when it comes to retirement ages. Do I hear seventy-five? Who knows what an average lifespan will be in 2050. I am assuming that we will live longer, but people might not actually want to if the standard of living plunges enough.

The new buzzword all over Europe… and I suspect we will be hearing over here as well… is austerity. Civil servants working short hours, retiring early and getting fat defined benefit (they are promised a specific number plus cost of living increase when they retire) pensions are no longer tolerable anywhere on earth. How to reduce those commitments when they have already vested may bring down more than one elected official, but there just isn’t enough money in the system to allow these “easy days” to continue. “‘We’re now in rescue mode,’ said Carl Bi ldt, Sweden’s foreign minister. ‘But we need to transition to the reform mode very soon. The ‘reform deficit’ is the real problem,’ he said, pointing to the need for structural change.” The Times.

Bottom line: it’s over; we all just have to figure out how to implement the change. Anecdotally, the writing is on the wall, obviously in failing Greece but ominously enough, in relatively solvent France as well: “Gustave Brun d’Arre, 18, is still in high school. ‘The only thing we’re told is that we will have to pay for the others,’ he said, sipping a beer at a cafe. The waiter interrupted, discussing plans to alter the French pension system. ‘It will be a mess,’ the waiter said. ‘We’ll have to work harder and longer in our jobs.’” The Times. Yup, ya betcha! But think about the impact on the younger side of the job market when those older folks aren’t leaving fast enough or early enough to allow a reasonable number of job openings as well as a reasonable chance of promotion. Not pretty, huh?

Sure, if you don’t have cost of living provisions built into the pensions (but many do), add a little inflation and voilà, you’ve solved the financial issue. So what if pensioners are reduced to dire poverty and have to think of food, clothing and shelter as luxuries. Their pensions would be toast, houses no longer would be underwater, and the government would get to tax the “fake appreciation” of values measured in an inflated currency and make enough money to resume a profligate path. Or we can downsize our lifestyles and our expectations to match our ability to pay. We’ve got problems, bu t Europe… they have a total disaster waiting for them.

I’m Peter Dekom, and these are indeed the times of a huge social change.