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ECB warns of demographic impact in new EU states

The European Central Bank has warned that a demographic shift reflecting an ageing population will be more severe in most of the 11 non-euro area member states than the European Union average.
The bank made the comments in a 443-page report on the convergence process of Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia and Sweden.
It said the “demographic shift due to population ageing will be even more severe in most of the countries covered in this report than on average in the EU.
“While pension system reforms have been initiated in a number
of countries, pension but also
health care systems are likely to bring substantial pressure to
bear on fiscal positions in some countries.”
ECB board member Otmar Issing said there was a “risk of additional fiscal liabilities arising from population ageing and unreformed pay-as-you-go pension systems in a number of countries”.
The report noted that debt ratios had been “increasing rapidly” in a number of the countries that joined the EU in May this year.
It added: “Many of them are facing important structural fiscal challenges, in particular linked to state guarantees and future pension obligations.
“These challenges, combined with recent slippages and uncertainties as regards future consolidation, may have increasingly been reflected in the development of government bond yields and exchange rates since mid-2003.”
The countries’ demographic challenges are running in parallel with other “structural challenges”
in their public finances, the ECB
says. In particular, it points to high ratios of revenue and expenditure to GDP.
“This suggests that the necessary fiscal consolidation efforts might need to focus on downsizing expenditure commitments.”

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