The EU’s fertility rate in 2060 will be 1.64 children per woman and the labour force participation rate will have risen to 74.1 per cent. Incredibly specific forecasts for 50 years from now. The EU’s Green Paper on pensions (and its sister document, the 2009 Ageing Report) is built on a mountain of such data.
Common sense tells us to treat such forecasts with great caution. Up to three years ago, very few could foresee the massive financial meltdown that was about to rock the world economy. Long-term forecasting is inevitably fraught with uncertainties. So much which is unprecedented can happen to redefine the economic, technological, geopolitical and environmental scenarios. Nassim Nicholas Taleb, in his book The Black Swan: The Impact Of The Highly Improbable, concludes that “it is better to be broadly right than precisely wrong”.
The EU seems to have a set agenda on pensions. Its point of departure is that, ceteris paribus, the present pension systems in member states are unsustainable. The devil is in that Latin term: in life nothing remains constant. The EU itself is meant to be a primary agent of change for European society. So to project a situation 50 years from now as if little will change is a big assumption indeed. Inevitably, the Green Paper ends up concluding that we Europeans have little option but to supplement existing public pensions by private ones and to accept a raised retirement age. The proposed debate is meant to focus on how this can be best achieved.
European citizens are being asked for more sacrifices, at a time when their standard of living is fast eroding, pushing many on the verge of poverty. We deserve something better from the European Commission. We expect an envisioned and creative approach to the pensions challenge. We know that things have to change and that there are no easy solutions. It is the task of our leaders to inform, inspire and incentivise EU citizens to action.
In the previous article it was argued that the basic problem lies in Europe’s population growth. So the solution has to address this issue by creating family-friendly measures. The EU finds money for everything: to continue subsidising an obsolete agricultural policy, to bail out bankrupt states and financial institutions and so on. Surely, it can devise incentives to encourage population growth. And there could be other solutions such as offering membership to Turkey, which has a relatively young population.
Alternatively, it may be decided to incentivise increased investments in automation, thereby further reducing labour input. The Green Paper claims that in 2060 there will only be two workers for every pensioner. This is a strong statement. But it tells us nothing about the productivity or value-generating capacity of these workers. Surely, there should be a link between the Green Paper and becoming the “world’s leading knowledge society”?
Of equal concern is the neo-liberal approach of the Green Paper. In a way, forcing private insurance on employees will be unduly rewarding the financial sector, which is a primary culprit of Europe’s fiscal mess and the erosion of personal savings. The Green Paper tries to lure employees by the promise of greater choice. They will also have to bear increased costs and higher risks. In fairness, it highlights the need for governments to help citizens make better-informed choices about their retirement income and hints that the EU may set up a pension benefit guarantee scheme.
The pensions challenge cuts deep into European society: today and tomorrow. We are all in favour of adequate and sustainable pensions. But what is an adequate pension? Is the PAYG pension scheme unsustainable due to longer longevity or mismanagement of collected funds by national governments or both? Why not consider measures that would render existing public pension schemes sustainable? Moreover, how sensible is it to discuss pensions in isolation and cut off from a review of public expenditure, welfare systems and economic growth at both the EU and national levels?
It is time for the EU to think first about the interests of its citizens. Many are disillusioned by their national governments and look at the EU to restore their trust in the political class. If national governments are unable to deliver their “pension promise” it is also because of their “short-termism” and misuse of funds. The EU should insist that the principle of subsidiarity on pensions be removed.
The EU has to be more proactive. If there is a real need, then the EU should broker a pan-European pension scheme on a public-private partnership basis. Such a scheme would leverage the size of Europe’s population and facilitate internal labour mobility while promoting the single market. It would also give the EU direct access to immense financial resources that can be channelled to sustain Europe’s “real” economy.
To deserve such trust, however, the EU needs to come up with better documents than the Green Paper on pensions. Ultimately, this issue is about values, priorities and good governance and not just numbers. The EU has to show that it really cares and that it deserves the adequacy of pensions in Brussels.
fms18@onvol.net