In this issue:

Cardinal Pio Laghi Reveals Bush's Broken Promises

French Minister Calls for New Relationship with U.S.

Britain's Old-Age Pension Model Under Scrutiny

1953 London Debt Deal Revisited in Tsunami Disaster Talks

Deutsche Bank Boosting Private Pension Schemes

Western European News Digest

Cardinal Pio Laghi Reveals Bush's Broken Promises

The Italian Cardinal sent by Pope John Paul II in 2003 to try to dissuade President Bush from invading Iraq, said on Jan. 10 that Bush had promised that the U.S. operation would be "quick." Cardinal Pio Laghi visited Bush at the White House on March 5, 2003, to relay the Pope's position that dialogue, not arms, should be used to resolve the crisis over Iraq.

"When I went to Washington as the Pope's envoy, just before the outbreak of the war in Iraq, [Bush] told me: 'Don't worry, Your Eminence. We'll be quick and do well in Iraq,'" Laghi told the Italian TV station Telepace, which was broadcasting the Pontiff's annual address to diplomats.

When the United States went to war in Iraq, Laghi called the attack on Baghdad "tragic and unacceptable." "Unfortunately, the facts have demonstrated afterward that things took a different course—not rapid and not favorable. Bush was wrong," he told Telepace. Laghi had been the Vatican's first envoy to Washington in the 1980s, and established a friendship with Bush's father, President George H.W. Bush.

French Minister Calls for New Relationship with U.S.

In an interview with the Jan. 10 International Herald Tribune French Foreign Minister Michel Barnier echoed recent statements of President Jacques Chirac. Barnier reaffirmed France's intention to test the ground for a renewed Trans-Atlantic partnership. Barnier called for a new relationship with the U.S., the first test of which would be whether George Bush and his European allies could advance a Mideast Peace within the next six months. "For me, President Bush has an historic responsibility.... [T]hat responsibility is to bring Israel and Palestine to a negotiating table, ensure a successful Israeli withdrawal from the Gaza Strip, and engage in talks based on the Road Map toward peace, which envisages Israeli withdrawal from the West Bank. It's the test and the moment in the coming five to six months."

France, said Barnier, is keen to forge a better relationship with the U.S. and to meet every three or four months with Administration officials, members of Congress, and others. The Bush Administration should "reorient its priorities" in the Mideast. "I say there is no reform and no democracy in this great region, if we don't make peace.... The road to Baghdad leads through Jerusalem, not the other way around." Iraq would not be the catalyst to a democratic transformation of the Middle East, rather Iraq's own chances would be transformed by an Israeli/Palestine accord, Barnier said. "France will support the Jan. 30 elections, which needed to be as credible as possible and sensitive to the Sunni minority." The key for Iraq would be the prospect of total recovery and sovereignty.

Barnier further spoke about the need for a strong Europe, which would require an autonomous defense within the framework of NATO, one that respects alliances but is capable of autonomy. The second point to raise with the U.S. is terrorism. "We think to fight terrorism correctly, you also have to fight on the ground where it grows, and that ground is poverty and injustice."

Asked if France doesn't have too many pretensions on the world stage, Barnier replied, "We don't have pretensions. We have ambitions, we have ideas."

Britain's Old-Age Pension Model Under Scrutiny

"A Bloody Mess" is the title of a long article on social security privatization in Britain, appearing in the February 2005 American Prospect, and on its website. Written by a Financial Times senior reporter, the study delineates the disaster and scandal which resulted from Prime Minister Margaret Thatcher's 1984-88 series of laws which forced privatization of a part of Britain's public old-age pension system, after which, "on average, fees and charges [reduced] pension lump sums by up to 30% on retirement." The scandal of the privatization became so great by the 1990s, that the Blair government passed a law which compelled insurance companies who were managing the private funds to pay 12 billion pounds in compensation to workers for the money their private accounts had lost!

The British government's old-age pension system was similar to that established by President Franklin Roosevelt, in the United States, though set up after World War II. It was Thatcher's first government which cut the benefits—surprise, surprise—by re-indexing them from wages to inflation. Having cut them, Thatcher's second government bribed (with expensive tax rebates from the public treasury) and hyped (with a huge advertising campaign) millions of Britons to shift into private accounts, similar to 401(k)s, instead. By the 1990s, it became clear that most of those who switched, were doing much worse toward retirement, than if they had stayed in the public system, cut though it had been.

With successive stock collapses since the 1990s, imagine the situation now: "According to the Department for Work and Pensions, in 2004 alone, 500,000 people abandoned private pensions and moved back into the state system. Government actuaries expect another 250,000 to contract back in this year." In 2004, the Association of British Insurers urged all its member firms, to avoid further liability, to warn those still "contracted out" that they "might have made a bad choice" for their retirement.

"It was the biggest scandal in the United Kingdom to date," the article concludes.

A Jan. 12 Reuters wire pointed to the Chile model of pension privatization, and in a very superficial review, emphasized that Pinochet's privatization "pumped up the Santiago Stock Exchange," with high fees, very high profits for the AFPs, and low pay-outs to retirees. The wire puts the average pay-out to a retiree at just above the minimum pay-out of $130/month.

1953 London Debt Deal Revisited in Tsunami Disaster Talks

In the context of ongoing negotiations on the debt of tsunami-stricken nations, church-related circles in Germany have called for a new approach to settle the debt issue on a general level. They point to the 1970 debt talks between the Club of Paris and Indonesia, which were mediated by an independent expert—Hermann Josef Abs of Deutsche Bank.

Abs has been chosen because of his constructive role in the 1952 talks on the German pre-war debt, which led to the 1953 London Debt Agreement that forgave more than half of Germany's debt. It seems that the Indonesian government just recently tried to get the same mediation approach arranged for the Jan. 12 Paris talks, but the Club (except for, maybe, France and Germany) was not open to the idea.

The 1953 agreement is of interest, because it removed a big burden from the beginning postwar reconstruction in Germany, and granted Germany access to international loans again. The German contribution to this at that time was that its main orientation in economic policy was industrial reconstruction and production, with the aim of full employment as well. The present government of Germany is, unfortunately, far from that traditional orientation.

Deutsche Bank Boosting Private Pension Schemes

In a new study, titled, "Significant pension gap despite reforms," Deutsche Bank Research, headed by the bank's chief economist Norbert Walter, states that recent social security reforms by the German government are completely insufficient to defuse the ticking "demographic time bomb." The paper notes that for many decades, governments were just repeating the phrase "pensions are secure." This has definitely changed in recent years. Everybody has learned, says the paper, that the state-run pension system GRV will soon no longer be able to guarantee the living standards of older people. In particular, those who are now young will have to face the fact that further cuts in pension outlays and longer working years are unavoidable.

Within the next 30 years, public pensions will decline from 70% currently, to less than 50%, of the last net income. Therefore, says the study, only solution to maintain living standards of older people is private pension schemes. It doesn't call for shutting down state-run social security. But on top of the contributions to the GRV, every employee should allocate at least another 3% to 5% of his or her income to private pensions. And Deutsche Bank would be glad to take care of these additional money flows.