In this article, we identify four scenarios for resolving the debt crisis and how these may affect pensions.
The present debt crisis in Europe requires not only actions by individual states but also a sustainable long-term European solution. One-off national and multinational solutions need to be embedded in a more transparent and disciplined approach to national debt in Europe; one that better takes into account the costs of ageing and the bold policy reforms undertaken by member states.
Key points
- The debt crisis poses a substantial risk to both funded and unfunded pension systems
- Implicit liabilities like pension systems should also be taken into account
- European politicians need to take actions in order to restore confidence and contain the debt crisis
- Structural reforms are needed and budget deficits will have to be reduced.
Four scenarios for resolving the debt crisis
The resolution of the European debt crisis depends on two variables: first, market confidence needs to be regained in the short term and, second, structural reforms must be implemented in the long term. Without market confidence, countries will not be able to finance themselves. Without wide-ranging reforms, the debt crisis will resurface in the future when debt dynamics will be even harder to fix.
If we look at how the debt crisis may be resolved, we can identify four broad scenarios. Please read more in the full article (8 pages).
