EUROPE – The euro zone needs comprehensive pension reform or the fiscal position will become unsustainable, says the International Monetary Fund.
“Without comprehensive pension reforms, fiscal positions in most of the euro area will become unsustainable—in some countries quite soon,” said Eduardo Aninat, deputy managing director of the IMF.
Speaking at the annual meeting of the Ifo Institute for Economic Research in Munich yesterday, Aninat said: “Reforms of entitlement systems in the euro area would also help to achieve the important goal of medium-term fiscal consolidation.
“This goal—enshrined in the Stability and Growth Pact—is essential to address Europe's severely adverse demographics.”
“What is needed now, is decisive implementation of the reform agenda,” he said, adding that he welcomed German chancellor Gerhard Schroeder's proposals to improve incentives to work and make labour markets more flexible.
“I am encouraged by the resolve that governments are showing to address reforms now.”
And he said that more flexible labour markets “would yield large benefits”. He suggested that reforms could cut unemployment in the euro area by three percentage points and raise economic activity by five percentage points in the medium term.
“And if an improvement in labour market flexibility in the euro area is combined with the liberalization of the market for goods and services, the gain in economic activity could roughly double to 10 percentage points.”