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Pension Crisis in Europe Looms

Posted by Steve Markowitz on June 8, 2012

Europe plays the game of economic “Wach’em”, attacking problems only as they pop-up.  Its current focus is on sovereign debt and banks.  Unfortunately, the problems are broader and systemic.

The Wall Street Journal reported on the looming pension problems that European countries face.  Many of these countries have pension obligations exceeding 200% of their gross domestic product.  Only Sweden, Denmark and Poland have funded their state pension obligations.  The other countries have kicked the can down the road leaving the liabilities to be paid for from future tax revenues, the next generation.  Making matters worse, these pension liabilities are not included in the countries’ public debt figures.  This smoke and mirrors methodology is also used for U.S. governmental pension obligations and even Social Security.

Showing the extent of the problem, in England for example, the current shortfall is over $300 million.  In addition, the Journal reported that in 2010 each European pensioner was supported by four workers, a number that will drop to two within a few decades.  The Ponzi scheme that European governments use to fund their pension obligations is unsustainable.

The chart indicates the size of the public pension problems in Europe.  The worst offender is France whose current liabilities are 362% of GDP.  Remarkably, newly elected French President Francois Hollande’s first act was to lower the retirement age in France from 62 to 60.  For this incredibly stupid act Hollande should join Bernie Madeoff as a cellmate.  Instead, he will be viewed as a hero to many French, at least until the smelly stuff hits the fan in the not too distant future.

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