The graying of Europe [Editorial, The Wall Street Journal Europe, May 6, 2003] In Europe, life's certainties are death, taxes and the need for pension reform. Everyone agrees an ageing Continent spells doom for the government-supported retirement systems. Everyone also knows any meaningful overhaul will take real political courage. So inevitably, Europe's graying population waits and waits as the demographic time-bomb ticks. Italy, France and Germany recently pledged to get serious about pensions. While each proposal has its merits -- and the governments in these three large EU countries deserve credit for trying -- each falls short of what's needed to build a new system that makes economic sense and benefits the working population as well as retirees. Europe's politicians are afraid and fatalistic. Le Monde's editorial cartoonist, Plantu, pictures a "ghost of '95" Alain Juppe, the French prime minister in 1995 whose own reforms were shelved after massive street protests, haunting the current man in the job, Jean-Pierre Raffarin. The French unions announced a series of walk-outs this month after the government unveiled a package of changes last month. Similar noises are heard in Germany and Italy. Chancellor Gerhard Schroder got whistled at and booed by party faithful last week. Italy's Silvio Berlusconi punted the political responsibility to the European Union, insisting that Brussels must come up with a "welfare Maastricht." We doubt Mr. Berlusconi gave this idea much serious thought, but clearly he remembers all too well that a stand-off with the trade unions over pensions doomed his first government in 1994. When money and trade unions are involved, politics becomes tricky. But across the Continent, publics understand that the current "pay-as-you-go" system, in which today's workers are taxed to pay for the pensions of today's retirees, needs an overhaul. Some demographers reckon the number of Europeans above the age of 60 will have risen 50% between 1995 and 2025. There will be fewer workers to pay for retirees with each year. Budgets are already tight. Politicians are paid to explain these realities to their publics. The alternative is higher taxes to pay pensions, but even that's just procrastination. Politically the weakest of the lot, Mr. Schroder last month pledged to cut welfare benefits, liberalize labor laws and get serious about pensions in a bid to revive Germany's stagnant economy and his own chancellorship. Like Nixon in China, this left-wing German politician is well-placed to stand up to his unions and his own party, which knows his threat to resign could throw them out of power. Will he? Mr. Berlusconi remains the most popular prime minister in postwar Italy, and can leverage this position better than he has managed to so far to implement his promised package of reforms to make Italy more competitive. The French unions, while numerically not so powerful, remain a formidable force against change. Government workers in particular account for a quarter of the workforce, and will be most resistant to the Raffarin package, particularly the higher retirement age and the leveling of differences between private and public-sector workers. State workers can now get a full pension after 37.5 years or earlier, two-and-a-half years earlier than everyone else. As the hallmark of the package, this sort of tinkering hardly counts as revolutionary. The "pay-as-you-go" system (repartition) stays in place. As "one of the most important terms in the nation's social pact," to quote former Premier Lionel Jospin, repartition is a sacred cow Paris can't touch. The government may want to gradually push more people to invest in private schemes, as some are doing now. For all their caution, these governments are still delaying the inevitable. A braver, and ultimately better, path would be to take the example of Chile or some of the future EU members in eastern Europe: phase out "pay-as-you-go" and create private pension funds. The current generations will fund their own retirement. It lets people make individual choices, spares the working generation the burden of paying for their parents' generation, frees up government funds and gives a great boost to capital markets and the economy as a whole. It's straightforward logic, still too rarely heard in Western Europe.