The Sustainability of Pension Reforms in Central, Eastern and South-eastern Europe

Abstract

The World Bank has supported the fundamental reform of unfair and wasteful Pay-As-You-Go (PAYG) systems around the world since 1994. It sponsors a systemic overhaul that involves the dual paradigmatic shift from collective to individual responsibility and from state to private provision. Central, eastern and south-eastern Europe very eagerly embraced the new old-age pension paradigm without, however, knowing what its future implications would be. Widespread criticism, as well as political and economic failures, elicited a re-thinking of the Bank’s blueprint. This sounds not only as a mea culpa but it also signals that the new paradigm is a sometimes unnecessary and risky strategy which may fail to protect against old-age poverty as well as being politically very vulnerable. To substantiate this, the article accounts for the pension crises and responses in Croatia, Hungary and Slovenia. The three countries ended up with radically different institutional designs of their reformed pension systems, only to be all, to a varying degree, politically, socially or fiscally unsustainable.