ECB warns on accession states’ pensions

EUROPE – The European Central Bank has warned that demographic shift will be more severe in most of 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 the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia, Slovakia 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 said that debt ratios have been “increasing rapidly” in a number of the countries which 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 come alongside other “structural challenges” in their public finances, the ECB says, pointing 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.”

The ECB is holding a conference on convergence and stability on the new EU Member States in Frankfurt today and tomorrow.

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