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Brussels, 18 December 2012
Ensuring sound public finances: Fiscal Sustainability Report 2012
What is the Fiscal Sustainability Report?
The Fiscal Sustainability Report 2012 is a study produced by the services of the European Commission. The report analyses the sustainability of public finances in the Member States, looking in particular at the impact of the financial, economic and fiscal crisis and of demographic ageing, as estimated in the 2012 Ageing Report1. Following the publication of the previous Fiscal Sustainability Report in 2009, the Council of Ministers on 10 November 2009 requested that the Commission produce a new report based on updated long-term budgetary projections, incorporating the implications of ageing populations.
Which key challenges does the Fiscal Sustainability Report 2012 identify?
The deterioration in fiscal positions and increases in government debt since 2008, together with the projected demographic transition due to an ageing population, compound each other and make fiscal sustainability an acute policy challenge. Analysing risks to fiscal sustainability is therefore crucial at the current juncture. Both euro-area countries and the EU as a whole must be able to formulate appropriate policy responses and restore credibility and confidence. As developments in the recent past have confirmed, fiscal sustainability challenges are not only of a longer-term nature: in particular, the sovereign debt crisis has led to some Member States facing difficulties in accessing the market. The report therefore describes a multidimensional approach for assessing fiscal sustainability, based on short-, medium- and long-term challenges:
In the very long term, fiscal sustainability challenges influenced by population ageing remain significant in most countries, as illustrated by the S2 indicator. This reveals that additional policy adjustment is necessary. Several Member States have reformed their pension systems and set them on a more sustainable footing, a process that needs to be set in motion in all countries.
Are country-specific challenges detailed?
The report provides extensive country-specific analysis of fiscal sustainability challenges. It addresses all Member States except for those under a full economic adjustment programme, since their fiscal sustainability is assessed in detail in that context. The fiscal sustainability risks are not the same for every country. Risks in some countries are primarily of a short- to medium-term nature, while for others they are of a long-term nature, reflecting a need to address long-term age-related public spending trends, notably on pensions, healthcare and long-term care. The appropriate combination of policies will depend on the main reasons behind the sustainability challenges the different Member States are facing.