EUROPE – A senior official at the European Central Bank has said the bank does not underestimate the difficulties about the sustainability of Europe’s pension system and the flexibility of labour markets.

The remarks follow a European Commission-backed report which has questioned the viability of the pensions systems in the 13 so-called candidate countries.

Board member Sirkka Hamalainen told the American Business Forum on Europe earlier this month: “The flexibility of labour markets and the sustainability of pension systems are particularly important objectives for all European countries.”

She added: “We do not underestimate the practical difficulties connected with decisions in these - and in many other - fields, but there is an urgent need to look beyond the very short-term economic situation.”

“Even though structural resource allocation issues are not of a short-term conjunctural nature, they are an urgent issue,” the ECB board member said. “The single market and single currency need a highly integrated financial market across the entire market served by the euro.”

Hamalainen said that in Europe, “interpersonal income redistribution” has a higher political priority than in the US. “European societies are more security-oriented with relatively efficient safety nets, minimum income guarantees and more equal income distribution.”

But this greater security comes at the cost of economic flexibility and dynamism, she said. “In order to improve the growth potential, it is recognised that there is a need to increase the flexibility of our economies by providing positive incentives to that end in interpersonal income distribution systems.” But she stopped short of advocating a wholesale adoption of US-style policies.

“The solution can and should be found somewhere between the current European and US-style systems,” she told delegates. “It is only natural that there should be an ‘appropriate’ amount of safety and security in order to uphold the values which are common throughout Europe.”

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