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Pension Debacle

In late November 2014, Labour Minister Andrea Nahles learned that the budget proposed by the German government for the Ministry of Labour and Social Affairs was increased by €700,000. Nahles and her staff therefore have a total of €125.55 billion to spend in 2015 (as compared to 2014, when it was €121.98 billion).
Nahles said her ministry is the first not to take on any new debt, according to what is reported on the federal government’s web site.
It is all really quite unthinkable. Even this is exposed as a lie by the pay-as-you-go system adopted after the currency reform of 1948, and it will burden the state treasury with implicit debt for the entire life of the Federal Republic. In this respect, you have to wonder how such ideas every came to be.
All federal labour ministers who took over the ministry as the first step in their political careers have either overlooked the fact that pensions are at risk or have simply kept quiet about it so that they could continue to move up the ladder. We think the latter is the most likely explanation, although it hardly matters, since politics in Germany is not possible without impunity for professional liars. Taxpayers are liable for their country and have nothing in their pockets.
The pension system was never really secure, as Norbert Blüm once acknowledged, but now it has come to light that pensions can no longer be safe under any circumstances since they have been used to counteract rising public debt and the devaluation of the German mark and the euro. The result of this, with all of the political propaganda behind the rescue of the euro, which is actually weakening the euro, is that this public debt can no longer be repaid. The politicians won’t tell you this, but in 2004, at an event organized by AWD Holding AG, former Chancellor Schröder said that there will be virtually no more pensions, despite the fact that CEO Carsten Maschmeyer had systematically harmed investors who were expecting bond yields. In the end, Maschmeyer had to leave after Stern magazine disclosed (edition 49/2011) that prosecutors in Vienna had begun a criminal investigation of Maschmeyer and AWD “for suspicion of systematic fraud and the establishment of a criminal organization. The criminal investigation was launched at the request of the Vienna Consumer Information Association (VKI), which has also filed five class-action lawsuits on behalf of 2,500 AWD plaintiffs with claims totalling €40 million.”
Angela Merkel finally admitted this on the occasion of the 125th anniversary of the German pension fund, but praised the pension model as a “success and a defining characteristic of our welfare state.” Deception, madness, or both – does anyone really care to make a distinction?
Andrea Nahles completed 20 semesters of philosophy, politics and German studies, was involved with and became chairperson of the Young Socialists in the SPD party. Contrary to the PhD-mania that has smitten a number of politicians, Nahles earned a Master of Arts, which hardly qualified her to properly interpret socio-political and sociological relationships, and then she went to work for the German United Services Union ( ver.di ). Like others, her political career began in the Ministry of Labour. Any understanding of balance sheets or economics of any kind can be ruled out. What little she may understand of the structure of the state, politics and democracy is enough to weigh down the Labour Ministry for years with fanciful ideas such as retirement at 63, approved by the Bundestag in May 2014. Someone like Nahles, who knows nothing but has visions, is probably good at that. However, the outlook is not good for someone who has a suitable educational background and intellect but refuses to turn a blind eye to the essential problem. Retirement pensions and job security have been done in by public debt, the encumbrance of the euro and the crisis, of which there is still more to come as a necessary result of financial misery. The economy is already being used to keep the pension debacle alive via employer contributions, because this is what the politicians need to stay in power, Ms. Nahles above all.
When she talks about how there is sufficient funding for the mothers’ pension scheme, the youth support programmes, and even the unemployed and the municipalities, it reeks of a naïve assessment of a situation that could never work. But others will decide that after Ms. Nahles is long gone as she moves up the party ladder. None of this benefits the people, but what is amazing about politics is that it is also not necessary. When Nahles says that “43 million employees, 30 million of them subject to Social Security deductions” will remain in the labour market and that no new borrowing or cuts in social programmes will be considered in the budget because the pension funds are supposedly so well financed, this is simply a fairy tale. Moreover, although the pension contribution rate was reduced in 2015 and the federal subsidies to the pension fund were cut by about €500 million, this hardly leaves anything for the pension package, mothers’ pension and retirement at 63. When Nahles refers to this as the “expected scenario,” the question is why don’t any of her consultants show here the actual scenario?
The actual scenario is: the pension and civil servant retirement fund, as well as the pay-as-you-go elements managed via the Federal and State Government Employees Retirement Fund (VBL) and the supplementary pension fund, in addition to the public supplementary pension funds for the church, all run up debt. These debts are not repaid but deferred from one balance sheet to the next. The politicians are silent about the fact that these debts put a strain on the current state budgets. The employer’s contribution is reduced even though it must be increased and gifts are doled out so that politicians like Ms. Nahles can deliver a speech.
The bottom line reveals that each increase in pensions is ultimately financed by the taxpayer. The additional burden on the state budget is paid for by the people. And Ms. Nales finds this unpleasant fact useful. She can make gifts, cultivate her image, and appear to forget that this will hardly appeal to workers, since pensions will not be increased, but decreased, because there are no funds to cover them. Employers, and big capital, profit from each reduction in contributions, even though it is precisely their contribution that is all the more necessary, since all future employment income of workers subject to Social Security deductions will not be sufficient to cover previous pension insurance periods and the resulting pension entitlements and future contributions for funding pensions, and particularly all claims arising from this pension scheme. The pension fund is completely over-indebted on the order of €4- €5 trillion. In addition, there is the indebtedness of the statutory health insurance plan with a €1.5-2.0 trillion deficit in ageing reserves. And because this is so, the Federal Constitutional Court, with its party-approved judges, decided that that the implicit debts resulting from predominantly tax-funded benefits can be dismantled by reducing benefits, including those not funded by contributions in the framework of the means test in the German pension scheme, and all benefits for surviving dependents, and ultimately the Hartz IV benefits and all state and federal civil service pensions benefits, right down to the minimum subsistence level and/or the equivalent in food.
The whole thing is so difficult to understand because pensions increase nominally but everyone must pay to make up for the existing shortfalls as well as those that result from the increases. These debts are passed from generation to generation. The long period of time often makes it difficult to know who must pay more or receive less, when and how much. Also incomprehensible is the Federal Constitutional Court ruling of 10 December 2012 denying the property guarantee for such pensions. The court ruled that pensions are funded by taxes, including civil servant pensions and Hartz IV benefits. Therefore, if the state takes in very little, and there is not much in the tax pot, then fewer benefits are paid out. This even affects politicians, although theirs are 100% tax-financed with no contribution to any fund, despite their high salaries. Even they will receive less if the state coffers have nothing left to give. Either the members of the Bundestag who waved through this decision do not understand what they did or were sure that they could vote for special emergency rules and immediately escape from the danger zone. Of course, the taxpayer would also have to pay for this. The inclusion of disability income in the average earned income, resulting in a reduction of the latter and thus reducing the actual pension increase, was the result of tricks. It is as though the Finance Minister had included the drug trade in Gross Domestic Product to reduce the debt ratio.
For 2015, Andrea Nahles had announced a 3.56 percent pension increase. Shortly thereafter this increase was halved to 1.7 percent. The justification for this was: The disabled, with their lower earnings, had to be included when calculating average earned income, thus lowering the averaged earned income projected for 2015 accordingly. So, why was this not done in previous years? Because the figures in 2014 had to be glossed over in order to maintain the lie of the Black-Red (CDU/SPD) coalition budgets. Projecting a 5-percent increase for 2016 on this basis, as the daily BILD newspaper did, is absurd, but 2016 is still a long way off. All of these pronouncements can be withdrawn, supplanted or hushed up. That’s politics. The fact is that no projections are possible. No government can make no such projections, especially not in the present situation with the threat of national bankruptcy.
To portray the pension insurance system as a success as Chancellor Merkel has done is shameless. In the most critical stage of life in which people have no earned income and must accept whatever has been promised to them – however unsustainable – it comes down to trusting in partisan lies. Former German President Johannes Rau (SPD) once said that a breach of a promise is a breach of trust and therefore a crime. This applies to making false legal assurances. It is astounding that the parties bound by Christian principles support this. On top of this, the policy of rescuing the euro has led to virtually zero financing. Investment returns are not backed by assets. Germany’s explicit and implicit debt is a total of about €15 trillion. For more on this see:
Andrea Nahles may be rejoicing in her success, but there is none to rejoice in. She missed the chance, as did all of her predecessors, to finally introduce a capital-funded pension plan based on reversionary principles. If Ms. Nahles did this during her term by a key date the state would be broke. Ms. Nahles is silent about this. Since politics is in the business of possibilities and not necessities, things just go along like this as the state hobbles toward the crash with a pay-as-you-go system. All other proposals based on this or related procedures are equally harmful and require urgent reforms, including the necessary legal ground work.
The pension plan is therefore a systematic public deception carried out by the Grand Coalition which Nahles instigated members of the Bundestag to take part in, and which was secured by state authorities with the help of politically controlled (biased) Federal Constitutional Court judges bound by directives, and all with the blessing of Mrs. Merkel. This is possible because Germany is not a democracy and the people have no voice; 125 years of pension insurance dating back to Bismarck and including 65 years of constitutional law – 65 years of partisan rule, which in times of a declining euro and with perspectives of a government modelled on the U.S. system of “permanent insolvency,” can hardly be called a system that is democratic, social or governed by the rule of law – and it does not come close to satisfying people’s sense of justice.
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