ECONOMY

EU finance ministers will focus on cutting debt, pension reform

BRUSSELS – European Union finance ministers will pledge tomorrow to cut debt faster and reform pension and healthcare schemes, hoping to offset the effects of population aging on public finances and economic growth. Draft conclusions for the ministers’ meeting showed that unless swift action was taken, potential economic growth in the 25-member bloc would fall to 1.4 percent in 2030-2050 from 2.2 percent in 2004-2010 because of fewer people available to work. «There is a limited, but fast-closing, window of opportunity to take policy action,» said the conclusions, obtained by Reuters, adding that growth declines may be even steeper in some EU states. «In light of the challenges ahead, ministers reaffirm their commitment to… reducing debt at a faster pace, raising employment rates and productivity, as well as reforming pension, healthcare and long-term care systems,» they said. The ministers will discuss the issue on the basis of a report on the impact of aging on the long-term sustainability of the bloc’s public finances, prepared by the EU’s Economic Policy Committee and the European Commission. The report says that because EU citizens have fewer children and live longer, the EU’s working-age population is expected to fall by 16 percent between 2004 and 2050 while the number of EU citizens over age 65 will jump 77 percent. This means Europe will have only two people of working age per elderly person instead of four now, while the costs of pensions, healthcare and elderly care will rise. Immigration will only partially help, the report said. The report said the higher expected spending called into question the sustainability of pension systems in Hungary, Spain, Slovenia, Luxembourg, Portugal and Cyprus. In the eurozone, total age-related expenditure will rise by 1.9 percent of gross domestic product by 2030 and by 3.7 percent of GDP by 2050, the report said. But the situation is much better in the 10 new member states, where pension reforms have been implemented or are under way. Spending there is expected to fall by 1.8 percent of GDP by 2030 and inch up only by 0.2 percent by 2050. Most of the projected increase in public spending will be on pensions, healthcare and long-term care, starting in 2010 and with the largest rises in spending projected to take place between 2020 and 2030, the report said. An expected rise in employment, thanks to higher employment among women and older people, will not change the overall trend in the long term, the report said. The EU as a whole will reach its target of having 70 percent of its working population employed in 2020, 10 years later than the initial target date of 2010. The 12-member eurozone will reach such employment levels even later, in 2035, it said. The problem of aging will also be one of the key issues discussed by the eurozone’s 12 finance ministers, who meet informally this evening. The Eurogroup, however, will also assess the economic situation of the single-currency area amid high oil prices and market expectations of an interest rate rise by the European Central Bank on March 2.