Pensions

% earnings on retirement Pensions % of GDP Retirement age Future retirement age

male female
Greece 96% 11.6% 65 60 65
Spain 81% 8.9% 65 65 67 from ’13
France 53% 13.5% 60 60 63
Germany 43% 10.2% 65 65 67 from ’13
Ireland 40% 4.1% 65 65 68 by ’28
UK 34% 6.7% 65 60 68 by ’46

As part of an effort to save its pension system from bankruptcy, France last week announced a plan to raise the legal retirement age beyond 60.

The prospect of it being raised to 63, as is expected, prompted outrage in the land of the 35-hour working week.

More protests will follow in June as union leaders try to pressure the government into watering down the reform. In the end, though, even the French, with their legendary attachment to leisure, may be unable to escape Europe’s looming age of austerity.

Experts predict a bleak period of belt-tightening and sacrifice lasting a decade or longer as Europe, struggling with low birth rates and longer life expectancy, attempts to reduce a mountain of debt that piled up to pay for the comfortable retirements to which its citizens had become accustomed.

“The scope and the scale of the reforms that need to be implemented is much greater than in the 1980s,” said Rainer Kambeck of the Rhine-Westphalia Institute for Economic Research, predicting civil unrest reminiscent of that in Britain under the government of Margaret Thatcher.

Thomas Klau, of the European Council on Foreign Relations, said: “The welfare state will inevitably change and become less protective. But it’s important to remember that we in Europe are in a luxurious position compared to the rest of the world.

“If we want to keep our first-class seat we will need to change the way that the carriage is built and run.”

Several European countries are raising the legal retirement age. Fiscally prudent Germans, bitter about having to bail out the profligate Greeks, will eventually have to work until 67. In Ireland and Britain the retirement age will rise to 68 by 2028 and 2046 respectively.

For the Greeks, at the centre of the crisis, the party is over.

They were allowed to join the common currency for political reasons and built lavish state systems on the back of it under which it was possible, in some cases, to retire before 50. Now they have frozen pensions for three years and are raising the legal retirement age for women to 65 as they try to avoid defaulting.

“It is important for all of us to work longer in the context of demographic ageing,” was how a spokeswoman for the European commission summed up the changes.

“More people working more and for longer is the key to ensuring pension systems are adequate and sustainable, both now and in the long term.”

The commission will recommend that the retirement age in the European Union be raised to 70 by 2060 so no more than one third of an adult’s life is spent in retirement. The risk, otherwise, is “a painful combination of smaller payouts and higher contributions”.

Public reaction thus far to such plans has been gloom, even if awareness seems to be growing that the current system is unsustainable.

“By the time I retire,” said Jean-Claude Iriart, a 38-year-old waiter in a Parisian cafe, “I am sure that the system will have been completely altered, and not in a way to help me. Will I be able to retire, even at 63?
Will I have enough money? None of it is certain any more.”

Public outcry is expected to intensify, for it is not only pensions that will be affected as EU countries try to save more than £340 billion — the amount needed to bring their budget deficits within the self-imposed EU limit of 3% of gross domestic product — by 2013.

Germany is expected to make cuts in education, child support, healthcare and other benefits later this year. Portugal will also make cuts in social services; in Italy public sector salaries will be frozen until 2013; in Spain, civil servants’ wages are being cut by 5%.

The prospect of greater labour unrest in Spain after a warning from the main unions that they may call a general strike, suggests a growing political crisis for Jose Luis Rodriguez Zapatero, the prime minister. He pushed through public spending cuts of £13 billion last week with only one vote to spare in parliament.

This was not enough to stop Spain’s credit rating from being downgraded on Friday over expectations of a marked slowdown in economic growth.

For Germany’s Angela Merkel, struggling to hold together a difficult coalition, and Nicolas Sarkozy, the French president, the stakes are as high. “The reforms will no doubt be politically detrimental to some incumbent governments, and a shift to the left or the far right is not inconceivable,” said Nicolas Véron, senior fellow at Bruegel, a Brussels think tank.

The political stakes are complicated by what Amnesty International has described as a rise in racism and xenophobia in the EU because of the economic downturn.

Some commentators fear an explosion of anger against immigrants and other minorities as unemployment rises and benefits are cut.

Fears of unrest have also been fuelled by riots in Athens, where three bank workers were killed after hooded protesters set fire to their office during a demonstration against the intervention of the International Monetary Fund. In Germany last year there were 1,822 registered acts of violence by left-wing radicals, a rise of 53% on the previous year.

Sarkozy, whose approval rating is at its lowest since his election three years ago, has trodden with care, explaining that with people living longer, the state cannot go on funding a pension system, under which a woman in the state sector with three children is entitled to retire after
15 years. If nothing is done, the deficit in the system is expected to reach £85 billion by 2050.

Sarkozy has tried to soften the blow by revoking a 50% ceiling on income tax. High earners now will have to pay an as yet unspecified amount in “solidarity”.

That has done little to appease the opposition, however. Martine Aubry, head of the Socialists and a possible presidential candidate against Sarkozy in 2012, has said that if she came to power she would reinstate retirement at 60.

With 64% of Germans opposed to bailing out EU countries, Merkel, too, has seen her popularity drop to new lows. Even the two aristocrats in the government, Karl-Theodor zu Guttenberg, the defence minister, and Ursula von der Leyen, minister of labour and social affairs, are more popular.

In France, opinion polls show most people understand that an overhaul of the pension system is necessary. But 60% claim that working beyond 60 is unacceptable.

Benoît Hamon, a Socialist politician among the protesters on Thursday, called retirement at 60 an “extremely important right” and accused Sarkozy of attempting to “unravel the French social model”.