Chapter 6: the Effects of the European Semester on Belgian
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UvA-DARE (Digital Academic Repository) The political economy of the social dimension of economic and monetary union The effects of the European Semester on social and employment policies in Belgium Louvaris Fasois, C. Publication date 2018 Document Version Other version License Other Link to publication Citation for published version (APA): Louvaris Fasois, C. (2018). The political economy of the social dimension of economic and monetary union: The effects of the European Semester on social and employment policies in Belgium. General rights It is not permitted to download or to forward/distribute the text or part of it without the consent of the author(s) and/or copyright holder(s), other than for strictly personal, individual use, unless the work is under an open content license (like Creative Commons). 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The effects of the European Semester on Belgian pension policies14 6.1 Framing the Semester effects within the wider ageing policies: the last 30 years Pensions have been always seen as one of the ‘immovable’ objects towards any reform effort and at the same time as a difficult field to analyse when looking at the EU’s influence (Vanhercke, 2009; Natali and de la Porte, 2009). On the one hand, pensions are at the core of social policies, thus belonging to the competence of member states. On the other hand, they are inextricably linked with the sustainability of budgets and public finances. As a result, their double character has been raising multiple disagreements not only between the EU and member states but also among the various actors of the political spectrum. In order to understand better the impact of the European Semester on a field so closely embedded in national traditions -and thus path-dependent- it is helpful first to review briefly Belgium’s pension policies over the past few decades. The issue of pensions has been traditionally included in the general debate of reforming the Bismarckian social security system as a whole - including health care expenses, unemployment benefits and family allocations15. For that reason, ageing strategies in Belgium have been presented since of the late 1990s as something broader than the legal (or statutory) retirement age, aiming to raise the employment rate of older workers in the labour market. The term ‘prépension’ or ‘brug- pension’ refers to a scheme applied to dismissed employees over a certain age which aims to support the individuals materially -along with the unemployment benefits- and make their transition to retirement smoother.. Likewise, the effective retirement age is the actual age at which employees exit the employment market while the legal retirement age refers to the age at which someone gains the legal right to a pension. Along general lines, we can divide the evolution of the Belgian pension debate into four broad phases. Roughly speaking, the period from 1980 to 2000 saw fiscal discipline as a way to contain pension expenditures. During the two Verhofstadt governments (1999-2007), the sustainability of pensions was closely linked with the increased participation of older people in the labour market. As mentioned in chapter 4 and further elaborated in the following chapter, in the aftermath of the institutional crisis the Di Rupo government increased the effective retirement rate and tightened the criteria for access to pre-retirement schemes. Most recently, the Michel government dealt with the statutory retirement age and accelerated the measures of the previous government. Although not so prominent, the national debate on reforming the Belgian pension system already began thirty years before the launching of the European Semester. From the beginning of the 1980s, Belgium confronted major problems of competitiveness, a topic which was understood by the politicians as vital for the country’s open and export-oriented economy. As a policy response, an 14 Specific passages in this chapter have previously appeared in Louvaris Fasois (2018). 15 For a comprehensive view on the welfare reforms in many EU member states since the 1970s see Palier (2010). 78 ambitious program of austerity and devaluation strategies was put in place which more or less lasted for 20 years -the period from 1981 to 2001. Already from the mid-1980s, the Belgian government was active in the negotiations over the single market act (Natali, 2008). With the signing of the Maastricht treaty and its criteria for entering the Eurozone, the political elite unanimously found a new opportunity to promote fiscal consolidation. As Deschouwer and Van Assche (2005) mention, evidence of such unanimous political support come from the fact that not only there was hardly any blame-shifting debate on the need to consolidate public finances, but instead the only criticism of the liberal opposition towards the center-left governments of the 1990s was that the latter were either “being too slow” or that they presented “figures that made the situation look better than it was”. According to Natali (2008) the politicians used the EMU and the SGP of 1997 as ‘leverage’ to advance their austerity policy reforms. Thus the enhanced efforts for fiscal consolidation during the period 1994-2003 (the so-called “glorious consolidation decade”) were closely linked with the political consensus to reach the Maastricht criteria, as well as with the enhanced Stability and Growth Pact later on (IMF, 2011 Report). The projections at the time showed that within the next 10 years Belgium’s high debt would finally reach an equilibrium. The Maastricht criteria were also seen as a positive factor for the institutional stability of the country. At the end of the 1980s and the beginning of the 1990s, Belgium experienced political tensions due to its ever-evolving and centrifugal federal structure, since the wealthier Flemish Region was asking for more fiscal autonomy and reduced transfers to the rest of the country. Traditionally, the Christian Democrats of Flanders as well as the successive alliances of Flemish nationalists were in favour of decreasing their financial contributions towards Wallonia. Although the debate on the decentralization of pensions was not so prominent compared with that on social health and family allocations, pressures over the last decades to regionalize the system have been notable. Fiscal consolidation was presented as a tangible solution that could reassure the anti-solidarity voices. In the domestic debate, the Maastricht criteria were commonly seen as a motivating pretext towards this goal, as confirmed also in the reports of the National Bank of Belgium (IMF, 2011 Report). The politicians were aware of the growing costs of ageing for public finances, but the debate became more prominent in the late 1980s (Marier, 2002), having as its epicenter demographic developments and their fiscal effects on the pension system. Since there was a wide consensus that fiscal consolidation was a priority, the pensions problem could be tackled within this wider framework: if the public debt could be lowered, then it would be possible to save money and finance the increasing costs of pensions. In May 1990, the Federal Planning Bureau presented its report on the future of the Belgian social security system including pensions. This would be used as an empirical basis for the political debate to raise the retirement age. The projections showed that under a no policy change scenario by 2040 the cost of pensions as part of the whole social security system would rise from 36% to 50%. The first government coalition of Christian Democrats and Socialists led by Jean-Luc Dehaene passed a major reform of the state’s federalist structure and took several measures on pensions, however cautiously and eventually with little impact - as Marier (2002) notes, the government did “minor adjustments” in the pension system. At the time, the European Directive CCE 79/7 called for equality of treatment between men and women (Council of the EU, 1978). As a result of its transposition into national law, in 1990 the Belgian government voted “a system of flexible retirement age” according to which men could retire at the same statutory age as women (60 years old, instead of 65 which until then was the case) “without any additional penalty other than the calculation of the pension was still based on 45 years” (Marier, 2002). Despite this 79 provision, in July 1993 the European Court of Justice (ECJ) ruled that the measure remained discriminatory and needed to change, since apart from the harmonization of the retirement age pensions should be calculated in the same way for men and women. As part of Belgium’s efforts to put public finances on track and meet the Maastricht convergence criteria, the Dehaene government tried to launch a “Global Plan” during the autumn of 1993. This aimed at lowering the social security costs by changing certain parameters. Specifically with regard to pensions, it aspired to limit the costs of the public sector pensions, by establishing a cap on their automatic indexation and eliminating the ‘tantième préférenciel’, an element in the relevant formula16. But eventually, due to the combined opposition of social actors –most prominently the FGTB and the CSC- the adoption of the plan was abandoned. In an effort to unlink pensions from social security contributions (SSC), part of the financing has been transferred to other bases over the years, such as taxes on consumption and specific products.