The great plundering of the European pension funds has begun

On Sunday night, the Irish and European authorities triumphantly announced Ireland"s rescue. The headline of a Bloomberg article stated: "Ireland wins a 113 billion dollars rescue package". It is enough to look at the details of the deal to realize that we are clearly not talking about a rescue, but rather a colossal theft. Apart from raising taxes and lowering social spending, the monstrous scope of the theft is the most visible when it comes to the pension system.

According to the late night agreement, Ireland will contribute to its own rescue by allocating 17.5 billion Euros taken from the public pension fund (author"s note: which has an estimated total value of approximately 24 billion Euros), and will pay an interest rate of 5.8% on the remaining 67.5 billion, higher than the 5% interest rate paid by Greece.

Fintan O"Toole writes in "The Irish Times": "This is not a rescue plan. It is the longest ransom note in history: do what we tell you and you may, in time, get your country back." The Irish Journalist ends on a bitter conclusion: "Ireland has lost. The EU has lost. We are both just pawns of European banks and the ECB".

Irish banks will receive up to 35 billion of Euros of the "rescue package", which is intended to prevent their major creditors (author"s note: mostly major banks of Germany, the UK and France) from having to take any kinds of losses, according to government statements quoted by Bloomberg.

Apart from the foreign financial support, the NAMA (National Asset Management Agency) will take on sour loans from Allied Irish Banks and Bank of Ireland, with a face value of 16 billion Euros, until the month of March 2011. The total amount of loans transferred to the NAMA will thus reach 89 billion Euros, as this portfolio will be financed by bonds issues, which will also require higher taxes to be paid back.

Until 2008, when it announced the total guarantee of the banks" liabilities, Ireland was enjoying an unprecedented economic growth. Data from the Irish Statistics Office (CSO) show that the last time the country had a monthly trade deficit was in August 1990! The average monthly trade surplus in the 90"s was 786 million Euros, and 2 billion Euros starting with the year 2000.

These figures alone are enough to prove that Ireland"s economy was extremely competitive.

Unfortunately, the lax monetary policies that Ireland "benefited" from after entering the Eurozone fueled an unprecedented real estate bubble which pushed the local banks and their foreign creditors to the brink of bankruptcy.

In its statistics bulletin of 2010, the CSO stated that Ireland"s public debt had fallen to 19.8% of the GDP in 2007, from 87.7% in 1990, but then climbed to 47.1% in 2009. The government"s general debt had climbed in 2009 to 65.6% of the GDP, after a low of 24.8% in 2006.

The latest official estimates show that the public debt could be capped at 106% of the GDP, but the rescue package that has just been approved will take it beyond the levels of debt that Greece had. That is to say nothing of the unrealistic forecasts of economic growth in the coming four years that the austerity plan of the government in Dublin relies on.

It is unlikely that this huge loan, which is equivalent to approximately 53% of last year"s GDP will provide any significant to Ireland. The only thing that is certain is that we will see an accelerated increase in the poverty of a very vulnerable social category: retirees. Who will pay back the pension fund and who will contribute to the public pension system, when a massive workforce migration is expected?

Just a few days before Ireland was "rescued", the Hungarian government announced the nationalization of private pension funds, after first severely crippling the ability of the Constitutional Court to react. Since their creation in 1997, the funds have accumulated over 3 trillion forint (author"s note: approximately 15 billion dollars). Those who opt for private pensions will lose their entire pension from the state, and their employers will be forced to continue to contribute to the public pension system.

So what was the reaction of the EU towards these Robin-Hood style plans of the Budapest Government? "We find that these plans are unacceptable, if the government is going to use the assets of the pension funds to pay for current expenses, as the draft budget for 2011 seems to imply", a spokesperson for the European Commission said quoted by Bloomberg. If the European Union actually cared about human rights should have been much shorter: "We find this plan unacceptable!"

It is no wonder, then, that the forint has begun a major slide, and investment analysts recommend leaving the Hungarian financial markets, due to the unpredictability of the government"s actions.

This open attack of the states on the edge of bankruptcy show how governments feel about public pensions. These "leaders" seem to have forgotten that they are a right, not a privilege, and their creation in the form of a "pay as you go" system was not the option of the citizens.

Ever since their introduction by Otto von Bismarck in 1889, public pensions have been nothing less than a pyramid scheme (author"s note: Italian Charles Ponzi is unfairly credited with the creation of pyramid schemes, it should bear the name of Bismarck). Bismarck"s pension program was financed through taxes, and pensions were paid out once individuals reached 65 years, while the average lifespan in Bismarck"s Prussia was 45 years.

Governments have now engaged in a race to raise the retirement age, under the pretense of fiscal responsibility, probably because they are jealous of the lifespan/retirement age ratio in Bismarck"s time. And why doesn"t the government educate its citizens when it comes to pensions or inflation?

The so-called modern states have begun using pension funds as they please, in particular in the period after WW2, in order to finance their expansion. The mandatory payments to the public pension systems was frequently justified by the fact that citizens can"t correctly assess or are to careless when it comes to their life in retirement, and the state can do a better job of looking after their money.

The representatives of the state have now proved, as if there was any need, that private and public pension funds alike can be stolen with impunity, in the name of the fictitious public good.

Albert Jay Nock, American writer and social critic of the early half of the 20th century, wrote: "the state is at its core an antisocial and criminal institution" (author"s note: "The criminal state ", Albert J. Nock, www.ecol.ro), and "like any predator or parasite, its first instinct is self-preservation".

The looting of the pension funds, in order to support a system on the verge of collapse, proves that governments are extremely demagogical when it comes to the much touted need for reform. The need for a restructuring of the banking sector pales when compared to the importance of the need for the reconstruction of the so-called state.

Isn"t it time we tried the alternative of wild capitalism? It may actually be more bearable, and the only thing we have to lose would be the new-serfdom of the multifaceted democracy we are living in.

Note: This article represents the author"s point of view, does not reflect or imply the opinions of the institution that employs him and does not represent an investment recommendation.