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Challenges posed by the ageing EU population for the financial sector - Economic and monetary challenges
Europe’s ageing challenge: It’s the economy, Stupid!
By Van Nieuwenhuizen Cora - MEP, Committee on Economic and Monetary Affairs, European Parliament
The European Commission’s latest Ageing Report shows the scale of the demographic challenge facing Europe: where now there are over 3 workers in the EU for each pensioner; by 2060, there will be fewer than 2.
Much of the ageing debate has been about the financial sustainability of pensions. While important, the real focus should ultimately shift from financial asset adequacy to the underlying economic reality of ageing. This is also where the EU should focus its attentions.
Financial assets, after all, are as such worthless: a pensioner cannot eat a bond or a bank note. These assets must be transformed into consumption. The ability to consume -living standards –ultimately depends on economic output. How to maintain, or increase production is therefore the real challenge.
Output is a function of labour inputs, capital accumulation and efficiency. The EU has a clear role to play in improving these parameters:
Labour force participation in Europe must be increased, including among older workers. Raising the effective retirement age requires Member States through the European Semester to make tough decisions to eliminate early-retirement options and to increase the statutory age.
Improving productivity is a second priority: investment rates have fallen, lowering capital accumulation and future output. Ageing itself is a cause of this, but so is falling efficiency. Total Factor Productivity growth has declined or turned negative in many Member States, caused by rigidities and inefficiencies in labour and product markets. The EU must push countries to reform, for instance by making EFSI funding conditional upon successful implementation of economic modernization. The EU must also focus on improving the Single Market by pursuing ambitious Capital Markets Union and Digital Single Market programmes, enabling companies to reap scale benefits. Increased efficiency is crucial for international competitiveness, economic efficiency and output growth.
Mr. Juncker has said that the EU must be big on big things and small on small things. Ageing is the biggest economic ‘thing’ of our time, and the EU has to be ‘big’ on pushing Member States to make their economies ageing proof.