The UK-centred debate over Europe’s pensions liability and its affect on EMU heated up last month when a lobbying group published a paper criticising the Parliamentary Social Security Committee for recommending that unfunded pensions liabilities should be included in the EMU convergence criteria.

In addition, in mid-February, the committee held a two-day seminar entitled ‘Unfunded Pension Liabilities in the European Union’ the same title as its controversial report on pensions published in October last year.

Those attending included, among others, members of the Social Affairs committees of eight EU parliaments, pensions professionals from across Europe and representatives of the OECD, IMF, World Bank and DGII of the European Commission. The Social Security Committee members also had the chance to meet their ‘accuser’, report author, Andrew Griffin.

Griffin’s paper “No Panic On Pensions” published by the Action Centre for Europe says: “It is the purpose of this paper to correct some of the more glaring mistakes contained in the committee’s report and subsequent press comment and to demonstrate that concern about pensions liabilities in EU member states should not be regarded as a legitimate excuse to opt out of a single currency.”

The main thrust of the paper’s argument is that between them the Maastricht Treaty, the Stability and Growth Pact and the remit of European Central Bank prevent any sharing of liabilities amongst EU nations. The report cites Clause104b of the Maastricht Treaty which explicitly rules this out. The paper also says that the Maastricht allows national governments to “tax high and spend high or to tax low and spend low, but they will not be able to tax low and spend high.”

However Conservative MP and committee member, David Shaw challenged this interpretation. “The Maastricht Treaty has exemptions in it for special projects and sorting out the pensions mess could easily be defined as such. These restraints that are supposed to be on the European Central Bank could fall away if the European ministers agreed to it. People are burying their heads in the sand if they think that the Maastricht Treaty can stop this problem from emerging,” he said.

Griffin said that at the seminar some MPs expressed interest in his paper despite its critical tone. However he added: “Having produced this report in which they linked pensions contributions to EMU it seemed that at this event they didn’t want to talk about it at all. This was a surprise to many people including myself.”

Both Shaw and Labour MP and committee member Alan Howarth believed that the seminar had proved very useful in showing that politicians and professionals across Europe are at least aware of the extent of the problem. Howarth was keen to stress that the issue would have to be addressed regardless of the EMU debate but he did suggest that the politics of the run-up to a single currency had meant that the issue was being ignored.

He also defended the committee’s report. “Whether we have a single currency or not, the reality is going to have to be faced: there are huge liabilities which don’t form part of the national debt as conventionally recognised. They are liabilities nonetheless.”

Howarth added that he found it difficult to see how these could be met without tax increases or borrowing and added: “If it is done through dishonest borrowing then we run a risk that Europe might return to inflationary finance.”