Italy hit by Pensions Strike as Germany Debates Reforms

It’s long been no secret that Europe’s ageing population presents a demographic time bomb. With more retirees and fewer tax-paying workers to support them, the continent’s governments are being forced to pursue highly unpopular measures to shore up their creaky social security schemes.

On Friday, the first draft of emergency legislation aimed at plugging the holes in Germany's ailing pension system was debated in the lower house of parliament, the Bundestag. German Chancellor Schröder’s coalition of Social Democrats (SPD) and Greens put the finishing touches on the draft Thursday night and a majority of coalition members, including all members of the Green party, voted to support it.

However, 15 SPD members withheld their support, sighting problems with certain social aspects of the draft. Despite the SPD dissenters, the party's parliamentary floor leader Franz Müntefering said he was confident the legislation would pass with the support of all of its members when it comes down to the final vote on November 6th.

“You can believe me that I don’t enjoy doing this,” Social Minister Ulla Schmidt told parliament while defending the government’s decision to cap pensions for 2004 at current levels.

While the debate raged over pension reform in Germany, a general strike paralyzed much of Italy on Friday. The country's three powerful unions called for the strike to protest similar efforts to reform the pension system there. Earlier this year, strikes hit France and Austria, also protesting pension reform.

In Germany, facing tough opposition from the unions and the opposition conservative Christian Democrats, the government may be in for an equally bumpy ride as they attempt to set right a system that will run a deficit of more than €8 million in 2004.

Debate in the Bundestag

The draft legislation debated in the Bundestag on Friday proposes several tough measures meant to help overcome the deficit. Among them: pension contributions (the percentage of working people's income given over to funding the pension system) will remain stable at 19.5 percent, pensioners will not receive a cost of living increase in 2004, payments will be distributed at the end of the month instead of at the beginning of the month (effectively cutting one month's payment), and pensioners will have to pay nursing insurance benefit premiums.

And one other hotly debated issue, whether or not to raise the official retirement age from 65 to 67, was not resolved. A final decision on the matter was pushed back to 2010.

Germany, like many other countries in Europe, is facing a growing crisis over the pension system. The percentage of each working person's income devoted to keeping the system afloat continues to rise and non-wage related costs have ballooned, further dragging on an already troubled German economy. What's more, a demographic problem -- pensioners are living longer and drawing on the system longer, while a falling birth rate means there are fewer working-generation people paying into the system -- has further overloaded the system. Countries elsewhere in Europe are grappling with similar pension-related issues.

Strikes cripple Italy

In Italy, Prime Minister Silvio Berlusconi has announced tough measures to tackle the pension crisis. Earlier this year, he went on nationwide television to drum up support for his reform program, which, among other things, proposes raising the official retirement age by several years from 57 to 65 for men and to 60 for women.

In response, Italy's three major unions called for a general strike on Friday, which shut down most airline and train service, public transportation as well as schools. Even fans of one of Italy's most beloved pastimes, opera, were inconvenienced when Rome's famous La Scala opera house was closed due to the strike.

Berlusconi's first government was toppled in 1994, when his attempts to take on the issue were met with popular unrest. Though experts say this is unlikely to happen this time around as Berlusconi firmly has the support of his coalition partner, Lega Nord, which left him out in the cold in 1994. But the pension system is still largely considered the sacred cow of politics throughout Europe, with politicians proposing changes at their own risk.

German unions ready to rumble?

Germany's governing coalition could face similar problems here in Germany if the unions decide to take the issue to the streets. Thus far, union leaders have voiced their dissatisfaction with the proposals, but stopped short of calling for strikes or protests.

"We are going to take this debate to the factory shop floor, where we have the greatest strength," said Frank Bsirske, head of the massive service sector trade union Verdi, told the Financial Times Deutschland. "That is where we will concentrate our energies over the next few weeks." Bsirske, however, avoided indicating whether his union or others would call for large-scale protests.

But the unions aren't the governing coalition's only problem. They also face tough opposition from the conservatives, who control the upper house of the parliament, the Bundesrat. Whether the ensuing political debate spills out onto the streets – like in Italy, France and elsewhere – remains to be seen.