This article investigates the politics of reforming mature, pay-as-you-go pensions in the context of austerity. In both Sweden and Germany the Social Democratic party leadership advocated reform in response to similar financial and demographic pressures, but the Swedish reform was more successful in correcting perceived program weaknesses and in defending social democratic values. To explain this difference in outcomes, we focus on policy legacies and the organizational and political capacities of labor movements. We argue that existing pension policies in Germany were more constraining than in Sweden, narrowing the range of politically feasible strategies. By contrast, in Sweden, existing pension policy provided opportunities for turning vices into virtues and financing the transition to a new system. In addition, the narrow interests of German unions and the absence of institutionalized cooperation with the Social Democratic Party hindered reform. By contrast, the Swedish Social Democrats' bargaining position in pension reform negotiations with non-socialist parties was formulated with blue collar union interests in mind. The encompassing interests of Swedish unions and their close links with the Social Democrats facilitated a reform compromise.
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