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Europe needs more reforms to be able to cope with raising age-related costs
Commission Européenne - IP/06/150 13/02/2006
Brussels, 13 February 2006
European Union governments need to step up reform efforts in the face of rapidly ageing populations. In a report submitted to EU Finance Ministers prepared jointly by the European Commission and the Economic Policy Committee, detailed new projections are provided on the economic and budgetary costs for all Member States up to 2050. The scale of the demographic challenge is immense. The retirement of the baby-boom generation as of 2010 and continuous increase in life expectancy means Europe will go from having four to only two people of working age for every elderly citizen by 2050. With unchanged policies, EU potential growth rates will be almost cut in half by 2030. Public finances will come under severe strain due to increased spending on pensions, health care and long-term. There are positive signs that many Member States are facing up to the challenge. Several countries have curtailed access to early retirement schemes and have made reforms to their pension systems. This report shows that such reforms pay-off, both by raising effective retirement ages and by better controlling future public spending pressures. But there is no room for complacency and clear sustainability risks remain. The next few years offer a window of opportunity to intensify reforms before the full effects take hold. Delaying inevitable reforms will only raise the painful and budgetary costs.
"While the process of an ageing population cannot be turned around, the consequences for prosperity and sustainability lie in the hands of governments. Some Member States have already carried out reforms to avoid overburdening future generations. But there is no room for complacency. Member States should exploit a fast-closing window of opportunity to intensify reform efforts, especially in those cases where the long-term sustainability of public finances is most at risk. Unless this is done, many EU countries, from the old to the new members, will simply not be able to face the cost; not when there will be two workers per elderly citizen as opposed to a ratio of four to one now. Delays will simply increase the cost and pain of adjustment, which is not fair for our children and grandchildren. The prospects of much lower growth combined with the risks to the sustainability of public finances vividly underlines the need to live up to commitments to implement the Lisbon strategy and to modernise welfare systems" said European Economic and Monetary Affairs Joaquin Almunia.
A new study, which will be discussed by EU finance ministers this week, shows that the pension, health and long-term care costs linked to an ageing population will lead to significant increases in public spending in most Member States by 2050 on the basis of current policies, although there is a wide degree of diversity across countries.
The following are the main findings:
The unique quality of
this report is that it was produced jointly by the Commission and Member States
within the Economic Policy Committee. It thus provides comparable estimates of
the budgetary impact of ageing for the assessment of the risks to the
sustainability of Member States’ public finances in the context of the
Stability and Growth Pact while taking full account of the very different
national pension, health care and education systems.
Age pyramids for EU25 population in 2004 and 2050
Source: EPC and European Commission (2005)
[Graphic in PDF & Word format]
 The impact of ageing on
public expenditure: projections for the EU25 Member States on pensions, health
care, long-term care, education and unemployment (2004-2050) by the Economic
Policy Committee and the European Commission’s Economic and Financial
Affairs Directorate General. The full report can be found at
 More detailed
information about the impacts of enacted reforms are provided in the 'country
fiches" published on the web site of the Economic and Policy Committee: