In November, Hungary and Bulgaria came up with very similar policies that have surprised the European Commission, which is attempting to provide an EU-wide solution to pension reform in the EU's revised budget rules.
Both countries decided to nationalise their pre-funded pension schemes, thus artificially reducing both public deficit and debt as calculated by the Maastricht criteria.
"We are concerned about the latest announcement by the Hungarian authorities regarding the pension system," said Amadeu Altafaj Tardio, spokesperson for Economic and Monetary Affairs Commissioner Olli Rehn.
Tardio told EurActiv the Commission was concerned that wealth accumulated in pension funds would be used to finance current expenditure, artificially reducing public debt and deficit figures in the short term but putting the long-term sustainability of public finances in jeopardy (see 'Positions' below).
At a meeting in October, EU leaders decided to exclude the cost of pension reform programmes from public debt and deficit figures.
At the two-day meeting, a group of nine EU member states from the former communist bloc demanded that the cost of reforming their costly pension systems be excluded from EU budget rules.
But the meeting's conclusions merely invited the EU Council of Ministers to speed up work on how to integrate pension reform into the EU's revised Stability and Growth Pact.
New momentum for debate
The surprise move by Hungary and Bulgaria – and also a plea by Polish Prime Minister Donald Tusk that Poles should be allowed to transfer their contributions from private funds to the national social security institute – will inevitably give new momentum to the European pension debate.
EU Economic and Monetary Affairs Commissioner Olli Rehn has already had an "all but pleasant" discussion with his Hungarian counterpart, EurActiv has learned.
As for Bulgaria, the Commission is still studying the decisions made, which at first glance appear to have been less radical than in Hungary.
Excluding the cost of pension reforms from budget deficit rules is also likely to be discussed by heads of state and government on level 50 of the Justus Lupsius building in Brussels, when they meet for an EU summit on 16-17 December.
Budapest and Sofia succeed where Bratislava failed
In fact, Budapest and Sofia succeeded where Bratislava had previously failed. The former Slovak government of Robert Fico started to lure citizens back into pay-as-you-go (PAYG) schemes if they gave up their personal private savings. Yet, after two increased offers, the majority of Slovak workers refused to hand the government their piggy banks.
In Bulgaria, which has the most pressing demographic situation in the EU with a majority of its electorate now pensioners, the government came up with policies that forced the pension insurance industry to call for nationalisation as they could not meet their due payments under the conditions set by the government.
In addition, judging from press reports, the Bulgarian public never realised the full scope of a decision by the country's parliament, taken on 19 November with the votes of the ruling Citizens for the European Development of Bulgaria (GERB) party and the nationalist Ataka party. Most of the debate focused on the retirement age, while privatisation of the second-tier pension funds went unnoticed.
The Hungarian government, which enjoys a super-majority in parliament, gave citizens a choice. Hungarians must decide which part of their pension they want to forego: those who want to keep their pre-funded accounts will not be eligible for partial PAYG in future, even though they have contributed to the current generation of pensioners' payments; and those who want to keep their entitlement to a first-tier pension must 'volunteer' to give their savings to the government in exchange for maintaining their stake in PAYG schemes.
In fact, although pension fund savings are private property, the Hungarian government pre-empted any constitutional remedies by amending the constitution just a few days before announcing the plan. Thus, the prospect of any judicial review regarding such 'budgetary issues' was avoided.
When the Eastern European countries joined the EU in 2004 and 2007, a temporary compromise was reached among the member states: a blind eye was turned to the likely public pension deficits and the same deficit criteria applied with an 'adjustment' for member states that had already started significant pre-funded savings to deal with the demographic slump.
The sacrosanct Maastricht criteria were upheld, with a different calculation for five years. However, the sunset clause elapsed at the worst possible time, when in 2009-2010 all member states racked up excessive deficits and nobody dared touch upon the issue of unaccounted public pension deficits or tinker with the criteria that psychologically underpin the euro currency.
