September 16, 2005

Germany: A Sneak Preview of the US Without Social Security Reform and Entitlement Reform

Filed under: Economy,Soc. Sec. & Retirement,Taxes & Government — Tom @ 9:38 am

What is described below is happening here, though more slowly.

In The Wall Street Journal (requires subscription), from the Berlin bureau chief for Der Spiegel, on this Sunday’s election in Germany and the fiscal challenges that country faces (bolds mine):

A glance at the state’s finances shows how dramatic the situation is: Of 190 billion euros in tax revenues, 80 billion is passed on to the cash-strapped state pension system, 30 billion goes to the unemployed, and another 40 billion belongs to the banks, just to service debt. The rest is not even enough to pay the bureaucracy and to build roads. Ever-new credits are constantly needed so that Germany at least has the appearance of a prosperous country.

Relief is not in sight because the birth-rate has fallen by half since the early 1960s and so the work force will also soon fall by half. Two retirees will then be financed by one worker, which would be too much for everyone — the workers and the state. If nothing changes, the government will need 80% of the state budget in 2050 just to prop up pensions.

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Sept. 17 Wizbang Carnival participant.

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2 Comments

  1. And of course our politicians are going to claim they can’t walk (Deal with Katrina Disaster Relief) and chew gum (deal with Social Security/Medicare structural issues) as the same time.

    Another preview of the pitfalls with over-promising defined retirement benefits can be seen with the corporations that are starting to renege on private pensions; thus placing the burden on the Pension Benefit Guaranty Corporation (PGBC).

    I posted some thoughts on this at Tremors before the Earthquake.

    Comment by Porkopolis — September 16, 2005 @ 12:00 pm

  2. That post is very good. What else is good if you haven’t checked it out is Willisms.com’s weekly Social Security-related posts (he’s up to about 40). I’m hoping he doesn’t hit a pet SocSec topic of mine before I get around to it (I’ll keep suspense buidling).

    As to PBGC, NWA and Delta may be the “perfect storm” that brings PBGC down or finally convinces people that the government backstop needs to be withdrawn. We should not be absorbing this ourselves, either through higher taxes or higher PBGC premiums assessed on the companies who still have pensionse, the costs of which are of course eventually passed through to consumers.

    Comment by TBlumer — September 16, 2005 @ 12:07 pm

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