GERMANY – The equity market has underestimated what has already been decided on German pension reform, ABN Amro says.

“It may be too early to pass judgement on the success of pension reforms, but we believe that much has been accomplished and that the market still underestimates the extent of what has been decided,” said Rolf Elgeti, the bank’s head of European equity strategy.

“The groundwork for a more stable pension system has been created, the benefits of which will only become apparent over the coming years.”

Writing in the bank’s latest annual returns yearbook, Elgeti points out that the reduction in benefits “go way beyond what most other European countries have implemented”.

“Nonetheless, public opposition to these changes has been minimal, compared with both the public outrage that was seen in response to Hartz IV labour_reform and the large demonstrations that marked the French pension reforms.”

Elgeti said that the pension reforms – as with nearly all reform packages – means the consumer foots the bill by accepting lower benefits and later retirement.

“This has, of course, the potential to delay the domestic demand recovery even further as disposable income may shrink before it recovers in Germany.”

The reforms, as well as signs of lower wage costs at large German firms, are among the reasons ABN Amro says it is “more optimistic than consensus” on Germany in the long term.

“Change is finally happening in Germany after many years of stagnation and the rewards will begin to trickle in over the coming years.”

Last month, it emerged that Germany’s state-run pay-as-you-go pension scheme ended 2004 with a larger-than-expected sustainable reserve.