Latest news with #DIW
The Guardian
05-08-2025
- Business
- The Guardian
Pension age debate threatens to splinter Germany's fragile coalition
The fact that ageing Germany's generous pension system is unsustainable is political Berlin's worst-kept secret, but a controversial call to save it by hiking the retirement age to 70 has sparked howls of protest and threatened to destabilise the fractious government. The chancellor, Friedrich Merz, has largely sidestepped the ticking timebomb of the greying population since taking office in May, preferring instead to announce sweeteners such as tax breaks for older Germans to continue working past the retirement age. However his economy minister, Katherina Reiche of the Christian Democrats (CDU), a former energy executive who grew up in the communist east, has stepped into the breach with repeated calls this summer to get real about old-age benefits. 'Demographic change and ever-increasing life expectancy make it unavoidable: the lifetime labour period must increase,' she told the daily Frankfurter Allgemeine Zeitung late last month. 'We have got to work more and longer.' She said a major economic thinktank, the DIW, had argued two decades ago that the minimum pension age should be 70 by 2025 but that instead most Germans were on track to spend 'only' two-thirds of their lives employed – a ratio she described as untenable. A displeased Merz reportedly told her, quietly, to stay in her lane and show consideration for the concerns of the twitchy Social Democrats (SPD), junior partners in the ruling coalition who are polling at a meagre 15%. But the outspoken Reiche doubled down, insisting that for many Germans, 'happiness is not about retiring as early as possible but being able to still bring their experience to bear'. The SPD did not wait long to pounce, with pension age threatening to become a wedge issue in the fragile centre-right coalition government that replaced the previous three-way administration that collapsed in November. The SPD general secretary, Tim Klüssendorf, said flatly: 'A hiking of the pension entrance age is out of the question for us.' He described any such move as in effect a pension deduction. He argued for increasing contributions to the system by making it more attractive for women to work full-time, including expanding childcare and fostering job flexibility. Many economists back such a move, saying integrating more people into the workforce, including immigrants, would make a lasting contribution toward keeping the state scheme in balance. Other analysts have suggested pegging the retirement age permanently to the average life expectancy, as practised in the Netherlands. The German labour minister, Bärbel Bas of the SPD, has suggested tax increases and a requirement of freelancers, civil servants and MPs to pay into the pension system – proposals the conservatives have rejected out of hand. The writing, however, is on the wall: in the mid-1990s there were four employees paying into the social welfare system for every pensioner. By 2020, it was only three, and projections indicate that by 2035 the figure will be 2.4. Germany already shows higher-than-average labour market participation among 65- to 69-year-olds, with 21.2% in that age bracket listed as employed versus 16% in the EU. The average German pension start age in 2024 was 64.7. Denmark's parliament in May put the country on course to having the highest retirement age in Europe by adopting a law raising it to 70 by 2040. The SPD in the 2000s, when Germany reported more than 5 million jobless, spearheaded the biggest structural changes in decades by overhauling the labour market with a stick-and-carrot approach to unemployment and gradually raising the retirement age to 67 by 2031. The CDU general secretary, Carsten Linnemann, has said that kind of 'courage' was needed again, hoping that Germany's similarly gloomy economic mood now with its 'back to the wall' would spur on painful, necessary overhauls. But with fears rampant that Germany's once vaunted work ethic will prove insufficient to sustain its social welfare system, Merz drew ire earlier this year with comments widely interpreted as a swipe at 'lazy Germans'. The chancellor, who will himself turn 70 in November, warned at a business conference in May: 'We won't be able to maintain the prosperity of this country with a four-day week and work-life balance.' He sought to fine-tune his message last month, explaining he was not saying 'all Germans need to work more' but rather that the national average needed to be lifted. His coalition has said it will ensure a pension level of 48% of average lifetime income until 2031, a pledge critics have said is unfair to future generations without a clear plan for sustaining the system.
Yahoo
21-07-2025
- Business
- Yahoo
NATO has promised a spending blitz. Can its European members afford it?
The North Atlantic Treaty Organization, the defense alliance of 32 countries, is on a spending spree, with plans to funnel billions into their militaries and security systems over the coming decade. But it's a splurge that some European members of NATO, grappling with huge and ballooning debt burdens, can ill-afford. 'It's something unprecedented in peacetime to have such a massive increase in spending on any item – in particular, on defense,' Marcel Fratzscher, president of the German Institute for Economic Research or DIW, told CNN. Last month, NATO members agreed to boost their respective defense spending targets to 5% of gross domestic product by 2035 – more than double the current 2% target and the sort of major increase that US President Donald Trump has been demanding for many years. The pledge came as Europe's NATO members have to contend with an aggressive Russia and an America that has backed away from its long-standing role as the guarantor of the region's security. Governments have three options to meet the new spending target – cut other expenses, raise taxes or borrow more – but analysts told CNN that each is either politically unpalatable or unviable in the long term for heavily indebted European NATO countries. 'Many (European Union) countries face hard fiscal constraints,' analysts at Bruegel, a Brussels-based think tank, wrote earlier this month. 'It is unrealistic to expect countries that have struggled for decades to reach a 2% defense spending target to embrace credibly an ill-justified, much higher target.' Hard choices Many NATO countries have failed to meet the previous, 2% target, set in 2014. Most have increased spending in recent years in response to Russia's full-scale invasion of Ukraine in 2022 – so much so that the European Union's executive arm expects its 23 member states belonging to NATO to meet that target this year, based on their combined GDP. But they now need to go further. The new, 5% target includes a commitment by NATO member states to spend the equivalent of 3.5% of their annual GDP on so-called 'core' defense requirements, such as weapons, with the remaining 1.5% allocated to areas supporting defense like port infrastructure. For some nations, that will mean finding tens of billions of extra dollars a year. Frank Gill, a senior sovereign credit ratings analyst for Europe, the Middle East and Africa at S&P Global Ratings, thinks that meeting the 3.5% target alone will require European countries, including the United Kingdom, to borrow huge sums of money. Some nations may also cut or reallocate government spending to reduce the amount they need to borrow, he said, but that could prove difficult. 'A lot of (European governments) are facing other fiscal pressures… not least aging populations, which are essentially leading to even higher pension spending,' Gill told CNN. 'Politically, (that) is very challenging to cut.' Fratzscher at DIW in Germany agrees. For most NATO countries, he argued, cutting spending is 'utterly impossible.' 'Europe is aging quickly,' he said. 'It's completely illusionary to believe that… governments in Europe could save on public pensions, on healthcare, on care more generally.' The only sustainable way to finance the 'kind of magnitude of extra (defense) spending' now pledged by NATO is to hike taxes, he argued. Yet there exists neither the political will nor the public support to spend 'in such a dramatic way in this direction… and actually accept the consequences.' Crushing debt Simply borrowing more is a similarly tricky option in Europe where a number of governments are already saddled with debts close to, or larger than, the size of their country's entire economy. All else remaining equal, meeting just the 3.5% 'core' defense spending target could add roughly $2 trillion to the collective government debt of NATO's European members, including the UK, by 2035, according to a recent analysis by S&P Global Ratings. That compares with combined GDP of $23.1 trillion for the EU – a proxy for European NATO members – and Britain, based on World Bank data for 2024. The extra debt would be particularly hard to swallow for countries such as Italy, France and Belgium. These NATO members had some of the highest public debt-to-GDP ratios at the end of 2024, at 135%, 113% and 105% respectively, according to the EU's statistics office. Those are already heavy burdens. On Tuesday, French Prime Minister François Bayrou said the EU's second-largest economy risks a 'crushing by debt.' He warned that, should nothing change, just the interest France pays on its debt will swell to €100 billion ($117 billion) in 2029, becoming the government's largest single expense. He still supports splashing the cash on defense, while reining in other government spending. The EU is trying to make it easier for member states to invest in their security. Brussels has exempted defense expenditure from its strict rules on government spending and pledged to create a €150 billion fund from which countries can borrow, at favorable interest rates, to invest in their defense. However, there is another option for EU NATO members, according to Guntram Wolff, a senior fellow at Bruegel. 'Just not doing it. Not spending more,' he told CNN. Already, Spain has said it will not meet the 5% target, arguing that doing so would compromise its spending on welfare. Last year, the southern European nation spent only 1.28% of its GDP on defense, based on NATO estimates. Wolff said the 'best predictor for the increase in defense spending is (a country's) distance to Moscow – much more than any pledges at the NATO summit.'
CNN
21-07-2025
- Business
- CNN
Analysis: NATO has promised a spending blitz. Can its European members afford it?
The North Atlantic Treaty Organization, the defense alliance of 32 countries, is on a spending spree, with plans to funnel billions into their militaries and security systems over the coming decade. But it's a splurge that some European members of NATO, grappling with huge and ballooning debt burdens, can ill-afford. 'It's something unprecedented in peacetime to have such a massive increase in spending on any item – in particular, on defense,' Marcel Fratzscher, president of the German Institute for Economic Research or DIW, told CNN. Last month, NATO members agreed to boost their respective defense spending targets to 5% of gross domestic product by 2035 – more than double the current 2% target and the sort of major increase that US President Donald Trump has been demanding for many years. The pledge came as Europe's NATO members have to contend with an aggressive Russia and an America that has backed away from its long-standing role as the guarantor of the region's security. Governments have three options to meet the new spending target – cut other expenses, raise taxes or borrow more – but analysts told CNN that each is either politically unpalatable or unviable in the long term for heavily indebted European NATO countries. 'Many (European Union) countries face hard fiscal constraints,' analysts at Bruegel, a Brussels-based think tank, wrote earlier this month. 'It is unrealistic to expect countries that have struggled for decades to reach a 2% defense spending target to embrace credibly an ill-justified, much higher target.' Many NATO countries have failed to meet the previous, 2% target, set in 2014. Most have increased spending in recent years in response to Russia's full-scale invasion of Ukraine in 2022 – so much so that the European Union's executive arm expects its 23 member states belonging to NATO to meet that target this year, based on their combined GDP. But they now need to go further. The new, 5% target includes a commitment by NATO member states to spend the equivalent of 3.5% of their annual GDP on so-called 'core' defense requirements, such as weapons, with the remaining 1.5% allocated to areas supporting defense like port infrastructure. For some nations, that will mean finding tens of billions of extra dollars a year. Frank Gill, a senior sovereign credit ratings analyst for Europe, the Middle East and Africa at S&P Global Ratings, thinks that meeting the 3.5% target alone will require European countries, including the United Kingdom, to borrow huge sums of money. Some nations may also cut or reallocate government spending to reduce the amount they need to borrow, he said, but that could prove difficult. 'A lot of (European governments) are facing other fiscal pressures… not least aging populations, which are essentially leading to even higher pension spending,' Gill told CNN. 'Politically, (that) is very challenging to cut.' Fratzscher at DIW in Germany agrees. For most NATO countries, he argued, cutting spending is 'utterly impossible.' 'Europe is aging quickly,' he said. 'It's completely illusionary to believe that… governments in Europe could save on public pensions, on healthcare, on care more generally.' The only sustainable way to finance the 'kind of magnitude of extra (defense) spending' now pledged by NATO is to hike taxes, he argued. Yet there exists neither the political will nor the public support to spend 'in such a dramatic way in this direction… and actually accept the consequences.' Simply borrowing more is a similarly tricky option in Europe where a number of governments are already saddled with debts close to, or larger than, the size of their country's entire economy. All else remaining equal, meeting just the 3.5% 'core' defense spending target could add roughly $2 trillion to the collective government debt of NATO's European members, including the UK, by 2035, according to a recent analysis by S&P Global Ratings. That compares with combined GDP of $23.1 trillion for the EU – a proxy for European NATO members – and Britain, based on World Bank data for 2024. The extra debt would be particularly hard to swallow for countries such as Italy, France and Belgium. These NATO members had some of the highest public debt-to-GDP ratios at the end of 2024, at 135%, 113% and 105% respectively, according to the EU's statistics office. Those are already heavy burdens. On Tuesday, French Prime Minister François Bayrou said the EU's second-largest economy risks a 'crushing by debt.' He warned that, should nothing change, just the interest France pays on its debt will swell to €100 billion ($117 billion) in 2029, becoming the government's largest single expense. He still supports splashing the cash on defense, while reining in other government spending. The EU is trying to make it easier for member states to invest in their security. Brussels has exempted defense expenditure from its strict rules on government spending and pledged to create a €150 billion fund from which countries can borrow, at favorable interest rates, to invest in their defense. However, there is another option for EU NATO members, according to Guntram Wolff, a senior fellow at Bruegel. 'Just not doing it. Not spending more,' he told CNN. Already, Spain has said it will not meet the 5% target, arguing that doing so would compromise its spending on welfare. Last year, the southern European nation spent only 1.28% of its GDP on defense, based on NATO estimates. Wolff said the 'best predictor for the increase in defense spending is (a country's) distance to Moscow – much more than any pledges at the NATO summit.'
CNN
21-07-2025
- Business
- CNN
Analysis: NATO has promised a spending blitz. Can its European members afford it?
The North Atlantic Treaty Organization, the defense alliance of 32 countries, is on a spending spree, with plans to funnel billions into their militaries and security systems over the coming decade. But it's a splurge that some European members of NATO, grappling with huge and ballooning debt burdens, can ill-afford. 'It's something unprecedented in peacetime to have such a massive increase in spending on any item – in particular, on defense,' Marcel Fratzscher, president of the German Institute for Economic Research or DIW, told CNN. Last month, NATO members agreed to boost their respective defense spending targets to 5% of gross domestic product by 2035 – more than double the current 2% target and the sort of major increase that US President Donald Trump has been demanding for many years. The pledge came as Europe's NATO members have to contend with an aggressive Russia and an America that has backed away from its long-standing role as the guarantor of the region's security. Governments have three options to meet the new spending target – cut other expenses, raise taxes or borrow more – but analysts told CNN that each is either politically unpalatable or unviable in the long term for heavily indebted European NATO countries. 'Many (European Union) countries face hard fiscal constraints,' analysts at Bruegel, a Brussels-based think tank, wrote earlier this month. 'It is unrealistic to expect countries that have struggled for decades to reach a 2% defense spending target to embrace credibly an ill-justified, much higher target.' Many NATO countries have failed to meet the previous, 2% target, set in 2014. Most have increased spending in recent years in response to Russia's full-scale invasion of Ukraine in 2022 – so much so that the European Union's executive arm expects its 23 member states belonging to NATO to meet that target this year, based on their combined GDP. But they now need to go further. The new, 5% target includes a commitment by NATO member states to spend the equivalent of 3.5% of their annual GDP on so-called 'core' defense requirements, such as weapons, with the remaining 1.5% allocated to areas supporting defense like port infrastructure. For some nations, that will mean finding tens of billions of extra dollars a year. Frank Gill, a senior sovereign credit ratings analyst for Europe, the Middle East and Africa at S&P Global Ratings, thinks that meeting the 3.5% target alone will require European countries, including the United Kingdom, to borrow huge sums of money. Some nations may also cut or reallocate government spending to reduce the amount they need to borrow, he said, but that could prove difficult. 'A lot of (European governments) are facing other fiscal pressures… not least aging populations, which are essentially leading to even higher pension spending,' Gill told CNN. 'Politically, (that) is very challenging to cut.' Fratzscher at DIW in Germany agrees. For most NATO countries, he argued, cutting spending is 'utterly impossible.' 'Europe is aging quickly,' he said. 'It's completely illusionary to believe that… governments in Europe could save on public pensions, on healthcare, on care more generally.' The only sustainable way to finance the 'kind of magnitude of extra (defense) spending' now pledged by NATO is to hike taxes, he argued. Yet there exists neither the political will nor the public support to spend 'in such a dramatic way in this direction… and actually accept the consequences.' Simply borrowing more is a similarly tricky option in Europe where a number of governments are already saddled with debts close to, or larger than, the size of their country's entire economy. All else remaining equal, meeting just the 3.5% 'core' defense spending target could add roughly $2 trillion to the collective government debt of NATO's European members, including the UK, by 2035, according to a recent analysis by S&P Global Ratings. That compares with combined GDP of $23.1 trillion for the EU – a proxy for European NATO members – and Britain, based on World Bank data for 2024. The extra debt would be particularly hard to swallow for countries such as Italy, France and Belgium. These NATO members had some of the highest public debt-to-GDP ratios at the end of 2024, at 135%, 113% and 105% respectively, according to the EU's statistics office. Those are already heavy burdens. On Tuesday, French Prime Minister François Bayrou said the EU's second-largest economy risks a 'crushing by debt.' He warned that, should nothing change, just the interest France pays on its debt will swell to €100 billion ($117 billion) in 2029, becoming the government's largest single expense. He still supports splashing the cash on defense, while reining in other government spending. The EU is trying to make it easier for member states to invest in their security. Brussels has exempted defense expenditure from its strict rules on government spending and pledged to create a €150 billion fund from which countries can borrow, at favorable interest rates, to invest in their defense. However, there is another option for EU NATO members, according to Guntram Wolff, a senior fellow at Bruegel. 'Just not doing it. Not spending more,' he told CNN. Already, Spain has said it will not meet the 5% target, arguing that doing so would compromise its spending on welfare. Last year, the southern European nation spent only 1.28% of its GDP on defense, based on NATO estimates. Wolff said the 'best predictor for the increase in defense spending is (a country's) distance to Moscow – much more than any pledges at the NATO summit.'
The Independent
13-06-2025
- Business
- The Independent
What is the cost to the economy of Israel's attack on Iran?
If we needed another lesson about the difficulties of managing an economy in a period of nerve-wracking uncertainty, Israel's attacks on Iran have provided it. Market reaction to Israeli 200 fighter jets hitting more than 100 targets was swift – and predictable. The oil price shot up, the gold price shot up and share prices tumbled across the world. The FTSE escaped the worst of the damage, largely because of its substantial contingent of natural resource stocks, including the presence of two heavily weighted oil majors in its upper reaches. But it still gave up ground following its record close. Economic institute DIW has warned that higher oil prices resulting from the hostilities will hurt the German economy, Europe's economic engine – and the impact will not be confined there. Britain is in the midst of a moderate inflationary spike, with rates jumping to 3.4 per cent in April (3.5 per cent officially, but the Office for National Statistics got its sums wrong and has decided not to course correct). The jump in prices, created by an oil slick of bill, fare and tax increases in that month, is at least expected to be temporary. But higher fuel prices have the potential to change that by powering up prices, potentially leading to a higher and longer-lasting spike than had been expected. The Bank of England has no control over the international price of oil. However, history tells us it will act to damp down what it describes as the 'second order effects' from pricier oil fuelling inflation. That is a problem for the UK economy – and chancellor Rachel Reeves, while we're at it – because they could really use the helping hand of lower interest rates. Donald Trump's tariffs are hurting exporters and even though there have recently been signs that the trade deal secured by Keir Starmer will take effect soon, the base 'liberation day' 10 per cent levy will still largely apply to British exports. While this still leaves the UK in a relatively favourable position, the impact of the much higher tariffs on those without the (relative) benefits of a Starmer-style deal will still hurt. The US remains the world's biggest economy. Trump's economic vandalism will obviously damage the wider global economy, constricting trade, reducing growth, adding to the crippling uncertainty that many investors are apt to react to by hiding under their beds with pots filled with as much gold as they can afford. Companies can be expected to respond similarly if the hostilities continue: when CEOs hear war drums beating, they are apt to switch their focus from risk taking and investment to cost cutting and cash conservation until the turmoil has passed. In recent days, hopes of more UK interest rate cuts have been rising. The economy's struggles in April, which recorded the sharpest contraction in two years, the fact that inflation is actually lower than the ONS said it was and the marked weakening of the labour market, with unemployment rising, job openings vanishing and wage settlements falling, are food for those calling for looser monetary policy, including your correspondent. Traders had been betting on two more cuts, with the first coming in September. Israel's action, however, could shift the calculus again, certainly if it the immediate rise in oil prices is sustained. The Bank's rate setting Monetary Policy Committee (MPC) is not expected to move when it meets next week but, as ever, the comments in the minutes and the way the vote goes will merit close attention. Swati Dhingra will, as she typically does, take a dovish line. I would expect her to vote for an immediate cut. The big question is whether any of her colleagues on the nine-member MPC will join her. The uncertainty created by the outbreak of yet more hostilities is probably all the reason the majority will need for sitting tight and waiting to see how this plays out, before assessing the impact on inflation and the economy . For the rest of us, by which I mean those of us lucky enough to have savings and investments, the message is, well, sorry to descend into cliche, but keep calm and carry on. That meme, modern cliche and merch marketing tool – even though the faux wartime nostalgia of said merch is completely fake – represents sound advice. The markets are apt to panic when things like this happen. Traders who play an important role in price formation, exhibit herd like behaviour, even though this about the worst possible response. It was ever thus. But that doesn't mean we have to follow suit. Much better to sit tight and hope (pray?) that it blows over soon.
