Pension system

A Forward-Looking Pension Pact

ARCHIV - Senioren sitzen am 02.09.2009 in Leichlingen auf einer Parkbank und halten ihre Gehstöcke. Schlechte Beratung über Produkte zur privaten Altersvorsorge kommt die Verbraucher einer Studie zufolge teuer zu stehen. Foto: Oliver Berg/dpa (zu dpa" Studie: Falsche Beratung zur Vorsorge kostet Verbraucher Milliarden") +++(c) dpa - Bildfunk+++
Pension systems need to be rejigged to deal with changing realities.
  • Why it matters

    Why it matters

    A reform of pension systems would give people more flexibility and could also increase economic efficiency.

  • Facts


    • Europe currently faces an influx of refugees and last year, Germany accepted more than 1 million people seeking asylum.
    • E.U. countries agreed a stability and growth pact involving regular monitoring and policy recommendations to maintain fiscal stability.
    • Some countries in Europe, including Greece and Portugal, are struggling with high debt levels.
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Countries with high public debt badly need a credible set of fiscal rules within a monetary union.

This is what the euro-zone’s fiscal contract with its members is supposed to achieve. It acts as a commitment device forcing governments to gradually reduce their debt burden. The credibility of this commitment is what makes the high-debt countries less vulnerable to shocks that change market pricing of sovereign risk.

Unfortunately, this contract is not working. Under the pressure of the refugee crisis, the terrorist attacks and the revival of populism, the E.U.’s Stability and Growth Pact is limping and hardly enforceable. Its numerous exemptions make it no longer credible, and the increasing divergence in public debt-to-GDP ratios across countries certifies that the contract is simply not working.

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