Retirement postponed

The English language has many ugly expressions about the Dutch. Most go back to the 16th and 17th century, when there was intense competition and armed conflict across the North Sea. Dutch Disease is a more recent expression. Having suffered the consequences first-hand, my definition is not the standard textbook one. The crucial elements, to my mind, are a bloated public sector that crowds out the private sector, a nasty external shock that exposes the weaknesses of the economy, and incompetent politicians who make things worse.

For the current predicament of the Irish economy, it may therefore be useful to look at the solutions offered by the Dutch government. Since the early 1980s, there has been a broad political consensus on how to run the economy, and the Dutch economy has fared well as a result. The plan announced last night is not particularly impressive. There are four options to partly restore order to the public finances, but implementing all four would be too much.  Three of the four options are politically tainted for one of the three parties in the governing coalition. In a coalition, all three have to swallow their price or none will. So, only one option will be implemented, and the fiscal balance will be worse than needed.

The one big measure is a clever one, though. The retirement age will be raised from 65 to 67 years. This increases taxes and reduces expenditures. It also means reduced trouble for pension funds, so that contributions (and labour costs) do not have to go up that much. It does of course increase unemployment in the short run, but on balance I would think this is a positive development.