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. Its Global Aging Vulnerability Index lists France, Spain and Italy as most threathened by “a daunting fiscal and economic future.”
Young Europeans are becoming increasingly frustrated. “The current generation is leaving us complete chaos,” complains Frank Sarfeld, 38, a PR consultant in Hamburg. “The present system worked for only one generation–theirs.” Because they’re already straining under high taxes to finance today’s retirees, young Germans such as Sarfeld have little money to save for their own retirement–a frustrating double bind more and more young people are finding intolerable. Institutions from which the younger generation profit–schools and universities, for example–are in woeful shape, as an increasing share of stagnating education budgets goes into the entitlements of (older) teachers and professors rather than facilities and equipment. Meanwhile the average retirement age is still in the mid-50s in much of Europe, putting an even larger burden on even smaller shoulders. If reform doesn’t come fast, some Germans are already talking about “a war of the generations.”
European youth are now organizing and making their voices heard. In Germany, a Foundation for the Rights of Future Generations has begun campaigning against what its 33-year-old founder, Jorg Tremmel, calls “generational fraud.” In the Bundestag, young deputies are organizing across party lines to fight for “generational justice” against the older majority in Parliament. “Young people have got to put on the political pressure,” says the Green Party’s Anna Luhrmann, at 20 the youngest member of Parliament. “Or else our generation will see a return of real poverty once we reach old age.” Last week Paris saw what may have been Europe’s first modern pro-reform protest ever. Launched as a reaction to the union strikes, the surprisingly robust turnout of 30,000 marchers was dominated by young professionals.
But if these people want change, they better hurry. Political and economic power is already shifting to an older majority. –Among voters, retirees are the single largest age bracket; appeal to them and it’s easy to win an election. Threaten their privileges and out you go. Within the political parties and labor unions, memberships have aged even faster than the population at large. This permanent shift in political power means the window of opportunity for getting a majority on reform will close in a few years altogether, warns Hans-Werner Sinn, head of the IFO economics institute in Munich, in a recent study titled “The Path to Gerontocracy in Germany.”
There are at least a few signs of progress. In Italy, where the age wave has hit earliest and hardest, some useful laws have already been passed. The country now has a kind of affirmative-action program to promote young people’s entering business sectors dominated by oldies–like shoemaking and leather crafts. Both there and in Austria, governments have come up with proposals to overhaul the teetering pension system by requiring young people to save for retirement themselves. (Both countries have since seen strikes and protests against the changes.) Several countries, including Poland and the Netherlands, have begun the shift toward a more just system where each generation’s pension payments are invested for the future instead of being handed out under today’s “pay as you go” retirement schemes. And to prevent the voting clout of an older majority from overwhelming younger generations, several countries are considering constitutional amendments mandating what they call intergenerational sustainability in fiscal and environmental policies. Austria, for much the same reason, has lowered its voting age to 16.
Still, no matter how far-reaching the changes, the age wave makes it unlikely that Europe’s pensioners will ever again be as well-off and coddled as today. The longer countries like France and Germany put off reform, the harder it will be for today’s youngsters to retire in comfort. An “old Europe” won’t necessarily be as gloomy as many people fear. Humans adapt, and there is nothing inherently wrong with a shrinking society dominated by older people. But to prevent an aging Europe from plunging into poverty and generational strife, more Europeans need to start adapting now.
