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Businessweek Archives

Europe Needs Pension Reform Now (Int'l Edition)

International -- Editorials


It's time to reform Europe's creaky state pension-fund systems. The current unfunded pay-as-you-go schemes can probably be patched up and kept running for another decade or so. But it would be far better for France, Italy, and Germany, the nations with the most troubled systems, to bite the bullet now by creating private, tax-deductible pensions that give people incentive to save on their own for retirement.

The European Monetary Union, slated to start in 1999, can't reach its full potential without pension reform. Europe's leaders hope the euro will rival the dollar. Pension reform would create a vast new capital pool to fund the expansion of underdeveloped Continental capital markets necessary for that to happen. The new savings also would fuel Europe's corporate revival, especially if rules are eased to let funds invest more in stocks. Proposed Europewide rules governing pensions failed to win approval last year. Critics say private funds will be too risky or mainly benefit the affluent. The truth is, there is no choice. Current state pension systems barely work. Today, in prosperous Germany, retirees get an average stipend of only about $13,000 a year. One shudders to think what they'll get in 20 years as cash-strapped governments cut back contributions.

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