From Austerity to Austerity: The Political Economy of Public Pension Reforms in Romania and Bulgaria

Abstract

This article discusses the trajectories of pension system reforms in two of the latecomers to the EU: Bulgaria and Romania. It finds that over the past two decades, the two countries pursued increasingly dissimilar public pension reforms for managing their respective public pay-as-you-go pension systems. Using a political institutionalist theoretical framework, I argue that the divergence between the two cases is attributable to multiple factors. First, different temporary political compromises between national and international actors generated reforms that retrenched public pensions and introduced mandatory private accounts. Second, pension reforms often had unintended consequences that limited their intended impact. Third, incremental adjustments introduced by governments in response to political pressures caused alternating phases of austerity and generosity that catered to different constituencies in each country. In Romania, reform outcomes amounted to a moderately generous pension system, financed through relatively high contribution rates with a small funded component, while in the case of Bulgaria, the pension system evolved into a meagre programme, financed through low contribution rates and a larger private pillar.

Pension reforms in EU11 countries: An evaluation of post‐socialist pension policies

“…Bulgaria and Romania represent even more extreme cases, as indexation rules have often been entirely disregarded by the incumbent government, which passed pension increases and cuts by means of government decrees, leading to largely unpredictable changes in pensioners’ income. As Adascalitei () reports, the replacement rate of Bulgarian pensions oscillated between 28 per cent and 44 per cent of net pre‐retirement income throughout the 1990s. With the absence of clear rules binding pension indexation to inflation, the purchasing power of pensions declined rapidly in both nations throughout most of the 1990s.…”

International donors as enablers of institutional change in turbulent times?

“…For example, temporal political bargains occurring between international donors and national governments as well as the election cycle may condition JPBAFM 34,1 reforms' results. For example, a comparative study of Bulgaria and Romania were challenged by the crisis in 1997 and were recommended by IFIs to introduce a private pillar for the pension system (Adascalitei, 2017). Despite being episodic, such political compromise strengthened the position of IFIs for promoting pension reform in Bulgaria, whilst in Romania, extremely fragmented political coalition and criticism of the public pension system changes resulted in fading influence of IFIs and subsequent delay with the reform (Adascalitei, 2017).…”

Austerity and the welfare state: an introduction

“…The pension system and austerity have been analysed by many (Adascalitei 2017;Been et al 2016;Bridgen 2019), and have also been perceived as a central and core area of welfare states, which is the focus of Chapter 6. Change in pensions has been a central policy issue in many countries, with the aim of reducing the pressure on public sector financing by using instruments such as moving from a PAYG to some kind of funded system and/or changing the eligible Bent Greve -9781789903713 Downloaded from Elgar Online at 05/05/2021 05:13:56PM via free access pension age so that the pension age today is later than in previous years.…”