The EU is considering a controversial move to withhold funds from member countries that fail to address their pension systems, fearing a looming fiscal crisis due to an aging population. The European Commission aims to protect member countries' finances by tying pension reform to cash payouts from the EU's next €2 trillion budget. Three senior EU officials revealed that the EU executive's economic and finance legislative arms are exploring ways to support countries' state pension systems by recommending retirement savings policies. If these recommendations, known as CSRs, are ignored, countries may not receive their full share of the EU's seven-year budget from 2028. A senior Commission official emphasized the importance of helping countries tackle difficult pension reforms by linking them to investment. The EU faces a challenging situation with high debt, an aging population, and declining birth rates, which threaten public pension systems. In 2023, over 80% of EU pensioners relied solely on state pensions, leaving one in five EU citizens above 65 at risk of poverty. Brussels aims to alleviate the strain on state finances and create a U.S.-style capital market by encouraging long-term savings. However, this idea faces political challenges and potential backlash, as pension policy is outside the EU executive's legal scope. Tying EU funds to politically sensitive issues could be risky, especially given the voting patterns of older demographics. Pension reforms have historically sparked protests, as seen in Belgium and France, where austerity measures led to clashes with trade unions. The French government's recent decision to postpone pension reforms due to a parliamentary crisis highlights the challenges. The Commission's focus is on incentivizing retirement savings and corporate pension plans rather than setting retirement ages or mandatory payouts. CSRs are part of an annual fiscal surveillance process, where recommendations are negotiated to address a country's economic issues. However, past attempts to enforce these recommendations have met resistance, and the Commission's use of cash incentives from the post-pandemic recovery fund has faced skepticism. Critics argue that the paperwork and demands slow progress, and question the Commission's enthusiasm for this model, especially given the controversial nature of pension reform.
