Brussels, 16/10/2006 (Agence Europe) - In an article in its October monthly bulletin, the European Central Bank (ECB) examines the worrying impact for the euro zone economy of demographic change to 2050. The causes, consequences and remedies are the same as those set out by the Commission in its report on the ageing population, published last week (see EUROPE 9285), but the ECB is more interested in the monetary side. Analysing the impact on growth and public finances, the ECB also compares data for the euro zone with those for the United States and concludes that there is a link between demographic change and financial markets. This leads it to consider the possible implications for monetary policy. While the immediate effects seem moderate given the “slow burn” nature of demographic change, the lack of reforms could have indirect consequences, says the ECB, its recommended remedies for which are known: debt reduction and structural reform, so as principally to adjust the structure of retirement contributions, and increase employment levels, retirement age and working time.
The main implications for monetary policy may be resumed in increased inflationary pressure. This would result from a possible drop in productivity and available labour, combined with increased pressure on public expenditure and social security systems, which could induce some governments to create new taxes. Depending on the proportion of wealth invested in unindexed assets, the mandate of European central bankers could become more focused on price stability, in order to prevent erosion of retired people's capital because of the high inflation rate, says the ECB. The monthly bulletin is available on: http://www.ecb.int/pub/pdf/mobu/mb200610en.pdf (ab)