Ageing population puts six EU state budgets at 'high risk'

Ageing populations in across Europe will result in "high risk" public finances in six member states with average EU debt set to reach 200 percent of GDP by 2050 if national governments do not push through structural and budgetary changes. According to a report adopted by the European Commission on Thursday (12 October), the EU as a whole will see a hike of 4 percent of GDP [Gross Domestic Product] in age-related public costs by mid-century due to demography changes.

In some countries - like Spain, Ireland, Portugal and the Czech republic - these costs are set to jump by 7 percent of GDP while in others - like Poland or Latvia - they will decrease. The rising budgetary pressures are caused by the demographic changes Europe is currently undergoing - mainly a significant fall in fertility, with only a two percent rise in population expected between 2005 and 2025, as opposed to 25.6 percent boost in the US. Longer life expectancy is also contributing to serious concerns about the sustainability of pension systems.

The six countries with the highest risk forecasts - the Czech republic, Greece, Cyprus, Portugal, Hungary and Slovenia - face a combination of problems including high ageing costs, large state deficits and a high level of debt.

A slightly better situation has been recorded in ten member states - including Germany, France, the UK, Italy, Spain - with "medium" risks and nine countries - including Denmark, Finland, Sweden, Poland - with "low" risks for their future public expenditure. Some states, even those considered the least problematic such as Denmark, the Netherlands and Finland, may still have to consider further pension reforms to offset the costs of ageing populations even if they are are fairly strong in terms of budget deficit.

'What to do' list
Overall, the EU executive is suggesting three types of measures to member states - fix their public deficits, reform their pension and health systems to cut expenditure and boost employment, mainly of old workers – possibly by raising the retirement age.

Boosting employment has been one of the key goals of the so-called Lisbon agenda - an ambitious reform plan aiming at making the EU the most competitive economy in the world. Under the latest projections, the Lisbon goal of 70 percent employment by 2010 looks likely to be achieved ten years later - with the current average figure at 63.8 percent. The other challenge of boosting participation of older workers in the labour market has been so far achieved by eight countries, mainly Sweden, Denmark and the UK.

Asked whether it is not controversial to promote the employment of older workers while a high number of young people remain out of jobs in several EU member states the social policy commissioner Vladimir Spidla commented that the two groups are "not competing with one another." "Old people will not damage job opportunities for the young. We have to realize that our work force will be reduced by 20 million workers in the long run - and our recommendations are indeed of long-term nature," Mr Spidla told journalists. He also suggested that the EU could in future use its tools - such as structural funds - to tackle demographic changes and help governments to pay for kindergartens or other facilities making it easier for women to work.

In terms of pension reforms, EU economic commissioner Joaquin Almunia suggested the EU executive should only ask national governments to secure their sustainability, without prioritising one type of pension system over another.
Commissioner Spidla suggested the best solution is a mixture of pay-as-you go systems and private pension funds.