Brussels, 12/10/2006 (Agence Europe) - Thursday's adoption of a new communication on the viability of long term public finances, means that the Commission will continue to pursue its analysis into the impact of the ageing population, begun last Friday. It is also calling for reforms to be made (EUROPE 9130). On the basis of a report detailing the risks per country, it assesses the budgetary challenges up to 2050 and calls for joint action on three fronts: budgetary consolidation, especially debt, employment rates and productivity and reform of the pension and health systems.
In its study the Commission sought to quantify the scale of the budgetary challenge based on current budgetary positions (end 2005) and in relation to the developing costs of demographic ageing. Each Member State classes three risk groups and calculates the disparity incurred between the current position of public finances and that which is expected leading up to 2050. This policy remains unchanged because this gap would involve 3.5% of GDP on average for the EU and the Euro zone and the average debt ratio in relation to GDP, which will explode by 2050 and reach nearly 200% for the EU (as opposed to the current 63%). With a structural deficit of around 2% in the EU in 2005, it will therefore be necessary to correct the deficit in order to achieve a surplus of 1.5% of we want to fill this gap. The level of risk and their causes varies significantly between Member States, included that in each category but overall, the most significant risk to Member States is high budget imbalances and the significant increase in ageing related spending.
These two aspects often take significant proportions, Czech Republic, Greece, Cyprus, Hungary, Portugal and Slovenia belong to a category displaying high risks. The first of the five have high deficits and Greece also has to deal with considerable debt, notes the communication, whereas Slovenia has is notably confronted with longer term pensions related spending. Medium risk classed countries can be divided into those where the costs for an ageing population are high (Estonia, Ireland and Luxembourg) and those which have to clean up their public finances to varying degrees but for whom the costs of ageing are less worrying due to the fact of previous reforms having been made (Slovakia, Germany, France, United Kingdom, Malta and Italy, whose debt remains high). Belgium is between the two groups with part of the budget that appears healthy but still with significant debt and an increase in demographic ageing costs that are increasing faster than the Community average. Low risk countries are generally those which have taken measures to take into account demographic ageing, sometimes with reform of the pensions systems and which now boast solid budgets. These include Denmark, Estonia, Latvia, Lithuania, the Netherlands, Austria, Poland, Finland, and Sweden. This does not mean that there is no risk, the Commission explains, which considers that Denmark, the Netherlands and Finland should still carry out reforms to deal with pension related costs even if the necessary adjustment will be less than in other risk classed countries.
On Thursday Joaquin Almunia declared, “progress has been achieved but judging by the evidence it is not enough and the propitious period for elderly people to work and employment levels to progress, will soon come to an end”. Similarly, although demographic ageing will have positive consequences on spending linked to unemployment and education, economies will remain moderate. Pressures from demographic ageing on public finance can, however, be attenuated if Member States succeed by 2010 in their Medium Term Objective (MTO) - obtaining budgets that are at least in balance. The rise in debt ratio will therefore be contained around 80% of GDP and that of the deficit ratio around 1.5% in the EU and Euro zones. Although this scenario requires healthy budgets in the medium term, the result is only partial and it will be necessary to fully tackle spending linked to ageing in an effort to “diffuse the time bomb on pensions”, explained the Commissioner for economic and monetary affairs.
More generally, Member States have firstly, and with varying degrees of urgency, to deal with their current situations and achieve healthy budgets and reduce their public debt. They should then tackle employment rates, particularly for women and more elderly workers and increase labour productivity in the aim of improving growth potential and future living conditions. The governments have to reform pension systems, health care and the cost for carers. Pension reform will be accompanied by an increase in years at work, adds the Commission. The complete report is available at: (http: //ec.europa.eu/economy_finance/publications/european_economy/2006/eespecialreport0106_en.htm). (ab)