It shows that a majority of grades are in the A and B range, when, given an idea grading system, the average should be C, because it is the "meets expectations" kind of grade.
If most people perform better than simply meeting the expectations, it doesn't have to be the average.
The expectations don't rise because people's skills do. (The problem could be expectations falling or people's skills rising, and I assume you mean expectations have fallen.)
Grades are exactly meant to be individual, at least here, so it's decided how well you have to answer tests to get certain grades before the exams, and isn't allowed to change based on how many gets certain grades (which would make your grade depend on how well others in your class perform). Of course it's impossible to make it completely free of bias, but I think it's a good principle rather than giving everyone in some class worse grades because they just happened to have a bunch of very studious people. Or the other way around.
But we also have problems in Denmark with people making private schools with principles that are completely different from the education system in general, there have been some examples like no grades and essentially kindergarten-like classes. Also some examples where every student is forced to shake hand with the school leader every morning and mandatory Latin classes, kol, as if the school was stuck in the 1950's. Oh and don't forget the religious "schools".
I don't really have any comments on pussification because I'm not sure what you mean and the evidence for such a trend compared to the past.