Italy's Berlusconi Joins the Ranks of Pension Reformers

September 4, 2003

A Wall Street Journal editorial, "Berlusconi's Pension Battle," reports on the next Western European leader to commit to pension reform. Italy's Prime Minister Silvo Berlusconi joins Germany's Chancellor Schroeder and France's Jean-Pierre Raffarin in the struggle to raise retirement age eligibility for public pensions to an affordable and modern level. While strong resistance is expected from unions, the French case proves that the public will more strongly oppose higher taxes.

The editorial quotes Arnold Schwarzenegger in 1991: "'I come from Austria, a socialist country. There you can hear 18-year-olds talking about their pension.'

"Mr. Schwarzenegger's statement sounded like a joke, but it captures perfectly the eagerness with which Europeans contemplate their retirement pensions.

"The latest politician to enter [the pension reform] debate…is Italian Prime Minister Silvio Berlusconi. 'In Italy people retire on average at 57,' he told the Italian newspaper Libero on Sunday. 'It means unsustainable costs and an annoying loss of talent, which could end up sinking us.'

"There is no question that Italy's pension system is in trouble. Technically bankrupt, it starts each year with a €36 billion deficit [US$39.4 billion]. Pension payments gobbled up 13.8 percent of Italy's GDP in 2000, and Italy's aging population and low birth rates are expected to raise that number to 16 percent by 2033.

"Currently, Italians who have worked for 35 years can claim pension benefits at age 57. Mr. Berlusconi would raise that age to 60 by 2010, and to 62 thereafter. This strikes us as a modest increase, especially given that Italians already work fewer years than many Europeans. In Italy, just 28 percent of people between 55 and 64 have jobs, compared to an EU average of 38.5 percent. The French must work 40 years before becoming eligible for pension benefits; in Germany, the retirement age is 65.

"But Mr. Berlusconi is in for a fight…. Italy's labor minister, who does not belong to Mr. Berlusconi's party, says he won't support the reform unless later retirement is voluntary and accompanied by 'incentives' such as higher wages.

"But as French Prime Minister Jean-Pierre Raffarin demonstrated this summer, the foes of reform can be beaten. When Mr. Raffarin had the audacity to seek the elimination of an exception that allowed public-sector employees to retire earlier than their private-sector counterparts, the unions reflexively went on strike. But after thousands took to the streets to protest against the strikers, Mr. Raffarin got his reforms through parliament.

"We hope Mr. Berlusconi was taking notes."

It is clear that Berlusconi and other leaders are steering their countries' futures in the right direction with the latest efforts to keep their pension reforms sustainable. Raising the retirement age is well past due for many countries around the world, and in Europe in particular. However, including a private account option in addition would provide the incentives to remain in the workforce while lessening the burden on the public system.

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