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Population ageing could hit euro – Commission

EUROPE – The European Commission has warned that population ageing may be one of the “asymmetric shocks” that could hit the euro.

“In EMU European Monetary_Union, changes in competitive positions are one of the key adjustment mechanisms to cope with asymmetric shocks,” a new Commission report said. “For instance, differences in the pace of structural reforms or in the ageing of the population may call for real exchange-rate adjustments.”

Other potential sources of “asymmetries” included supply or demand shocks which affect some member states and not others.

It added: “The EU will undergo significant demographic changes in coming decades, which will lead to fewer people of working age and significant pressures for increased public spending, especially on pensions and health care.

“There is a narrow, but rapidly closing window of opportunity available to prepare for the inevitably serious economic and budgetary repercussions of these developments.

“Member states need to implement the agreed three-pronged approach, consisting of a much faster pace of debt reduction (requiring governments to achieve and sustain balanced budget positions over the economic cycle), measures to raise employment rates, and appropriate reforms of pension and health care systems.”

The report, published to mark five years of EMU, also said that Europe would be more affected by ageing than the US.

“As the effects of an ageing population in Europe come to be felt more clearly in the years ahead, it will be increasingly difficult for the euro-area economy to match US growth rates.”

It said that the euro area has “much more of an ageing problem” than the US – meaning it should “steer a more prudent budgetary course”.

“Five years on Economic and Monetary Union represents a remarkable political and institutional achievement for the EU,” said Joaquin Almunia, commissioner for economic and monetary affairs. “The challenge is now to tackle the remaining causes of slow growth in the Union.”

The report added that several new EU countries, with low debt levels and relatively new three-pillar pension systems – “appear in a generally good position to cope with the budgetary impact of ageing populations”. But there were some new EU members that have made little progress in reforming the first pillar, such as the Czech Republic and Malta.

Preparing for ageing is one of five priority areas identified by the Commission. The others are: growth, EU enlargement, economic policy framework and the “external representation of the euro area”.

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