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Sunday, September 30, 2012

Retirement Ages in Spain and Greece: On the Politics and Economics

According to the New York Times, “Spain has a stubbornly high budget deficit, its banks require tens of billions of euros in rescue loans and the government may soon have little choice but to request bailout funds” from the E.U.’s “TARP” program. Nevertheless, the state government’s “budget would actually increase pension payouts 1 percent [in 2013]. The money includes not only pensions for former public employees, but also the social security payments that go to all retired [residents].” Pension expenditures represent nearly 40 percent of the state budget and 9 percent of the state’s economic output, so one would think that line-item would be first up on the chopping block. One might assume that politics is the driving motive of the government, but it is also the case that cutting sustenance programs could actually exacerbate the state’s public debt, given the probably decline in demand. In this case, the politics in the state dovetails with the economics.
However, delaying the increase in the retirement age in Spain from 65 to 67 until 2027 can be seen as a case of politics operating at the expense of what is most needed economically for the state. Given the advances in modern medicine and the universal health-care systems in the E.U. (as distinguished from all but one of the U.S. states), even 67 could be too early to retire from work. As I write this essay, my parents are in their seventies and they both still work full-time. I know of many academic colleagues who are still active in their seventies, even if they are writing books rather than teaching. To be sure, the nature of the work is relevant. Not many people can dig ditches every day at age 75, but work suitable to an older body can be found (or created by the state).

Do the state governments have too much power at the federal level? If so, are Greece and Spain paying the price of the self-interest of more dominant states?  
In the case of the E.U. state of Spain, extending residents’ productive years adds tax revenue while reducing the spending needed for entitlement programs (medical disability is or should be an exception to the higher retirement age). This is particularly the case in states whose demographics are leaning toward an increasing proportion of retired residents.
The state of Greece demonstrates that going just from 65 to 67 can indeed be accomplished legislative in a year, even given the political protests. “For Greece,” according to the New York Times, “the longtime generosity of its pension system — in which large numbers were previously allowed to retire at 50 and younger — came to define the bankrupt condition of the Greek state. In the years before the crisis hit, pension payments in Greece totaled as much as 14 percent” of the state’s economic output. Raising the retirement age can be distinguished from the cuts in the monthly entitlement programs, which can actually put residents’ lives at risk.
From a human-rights perspective, the increases in human life-spans distinguish increases in the retirement age from cuts in monthly sustenance payments. Moreover, austerity programs need not come at the expense of human life. Programs based at that basic level can be set aside even as excesses in retirement ages (e.g., 50 in Greece for some occupations) can be corrected.
Lastly, the differential in the austerity programs in the states of Greece and Spain can be related to, or justified by, the differing situations of the two states. Accommodating such differences is a major plus of federalism. That is to say, the E.U. bailout program can and should distinguish in terms of its requirements the divergent situations “on the ground.” So to those who want to claim that the E.U. was not already by 2012 a federal system, I counter that it was already working at a very basic level (e.g., a common program, with different applications according to salient differences between the states).

Source:

Landon Thomas, “Pension Dilemma in Europe’s Debt Crisis,” The New York Times, September 30, 2012.