Keeping debt under control, Merkel said in a speech at an event held by her party, the conservative Christian Democratic Union, in the western German town of Meschede, isn’t the only priority. “It is also important that people in countries like Greece, Spain and Portugal are not able to retire earlier than in Germany — that everyone exerts themselves more or less equally. That is important.”
She added: “We can’t have a common currency where some get lots of vacation time and others very little. That won’t work in the long term.”
There are indeed significant differences between retirement ages in the two countries. Greece announced reforms to its pension system in early 2010 aimed at reducing early retirement and raising the average age of retirement to 63. Incentives to keep workers in the labor market beyond 65 have likewise been adopted. Germany voted in 2007 to raise the retirement age from 65 to 67 over the next several years.
The Chancellor is hitting the nail on the head here. A common currency requires a relatively high degree of economic integration, not just on fiscal policy, but also in how the members of the currency union regulate productivity. Of the most fiscally troubled countries in Europe, Greece is the one I know best. Over the years, workers have been given extraordinary benefits (e.g., 17 months pay for 11 months work). In a currency union, German workers are essentially subsidizing this kind of largesse. The Euro is a surprisingly robust currency despite these kinds of inequities, but I doubt it can continue unless the points made by Merkel are taken on board across Europe.