Remember the European Pension Bomb?
Investors are all talking nervously about the debt problems of Europe, but this is not the biggest problem Europe faces. With ageing population, the pension liabilities bomb risks bringing down many economies. With changing demographics, especially in the Med countries, more burden will be paid by less people working. Despite all these problems, no politicians will try dealing with the issue, as it is simple too big. Europe needs more people working, and needs the growth to come back. This once beautiful lady, has turned very old, amnd despite putting on all the make up, nobody is asking for the last dance. On the pension bomb, from Bloomberg.
State-funded pension obligations in 19 of the European Union nations were about five times higher than their combined gross debt, according to a study commissioned by the European Central Bank. The countries in the report compiled by the Research Center for Generational Contracts at Freiburg University in 2009 had almost 30 trillion euros ($39.3 trillion) of projected obligations to their existing populations.
Germany accounted for 7.6 trillion euros and France 6.7 trillion euros of the liabilities, authors Christoph Mueller, Bernd Raffelhueschen and Olaf Weddige said in the report.
“This is a totally unsustainable situation that quite clearly has to be reversed,” Jacob Funk Kirkegaard, a research fellow at thePeterson Institute for International Economics in Washington, said in a telephone interview.
And the prospects are not looking great.
Last year, there were 4.2 people of working age for every pensioner in France. The ratiowill fall to 1.9 by 2050, according to a report by Economist magazine in March. In Germany, the proportion will decline to 1.6 from 4.1 in the same period.
“That is going to put a lot of pressure on Germany’s ability to meet their promises,” McGuinness said. “What they are more likely to do is cut back benefits. Governments face a lot of longevity risks.”
Private pension funds are under pressure too with benchmark euro-area interest rates at the lowest level since the 13-year- old currency was introduced. Low rates mean pension plans have to hold more assets to back their long-term payout projections.
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