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Europeans cautious over PAYG woe - forecasters

EUROPE – A group of economic forecasters has said that problems with pay-as-you-go pension systems in the major euro zone countries are making consumers cautious.

The European Forecasting Network, a group of seven research institutes, said that problems of financing PAYG pension systems and public sector deficits in major Euro area countries were “strong reasons for cautious consumer behaviour”.

The comments follow a report earlier this week from the European Commission, which said private consumption was being hit by fears about population ageing and the slow progress of structural reforms.

The forecasters said that “it might be sensible” for euro zone countries facing the problem of pension funding to “aim for low debt positions now, in order to make room for a build up of debt later on”.

“But this is the kind of thing that needs to be examined and spelt out,” in Europe’s Stability and Growth Pact, they said in their spring report.

“The pact,” they said, “does not contain a debt target other than the one implied by the promise in its preamble that governments will aim, in the medium term, for a position of balance or slight surplus.”

Due to the countries’ differing debt and pension problems, they said, that a “positive evolution” of the pact “might be one in which a deficit rule feeds back on a debt target as well as the output gap”.

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