Past Event

Economic weakness and demographic challenges: what next for Europe?

After a year of weak recovery what is next for Europe? This event looked at both the general macroeconomic situation as well as the challenges posed by changing demographics

Date: February 22, 2016, 12:30 pm Topic: European Macroeconomics & Governance

Summary

See below for video and event materials

This event focused on the recently published European Economic Advisory Group Report of 2016, with special emphasis on the first two chapters (Macroeconomic Conditions and Outlook; Intergenerational Fairness).

In developed economies, the so-called intergenerational contract is facing challenges. Is the current model sustainable? When an individual is born, they receive net transfers from the state in the form of public services (mainly education). These are paid back as taxes during the early stages of the individual’s career. Thereafter the individual becomes a net contributor to the welfare state until retirement. Finally, they return to the initial stage, and receive public services in the form of healthcare and pensions. If properly implemented, this social contract offers a powerful and fair mechanism for intergenerational transfers.

Despite being one of the major hallmarks of developed societies, the intergenerational contract only works if public expenses are offset by working-life contributions. The “Great Recession” has accentuated the bias of public expenditure towards the elderly, leaving the younger to bear the costs of an increasingly expensive welfare state. Empirical evidence suggests that per capita pension and healthcare costs are increasing, even if you control for demographic factors such as the aging population. Although this does not make the social contract unsustainable per se, it comes at a time where neither demographics nor labour market indicators are showing positive trends.

Who gains and who loses from this situation? The current social contract seems to be most favourable to the generation currently receiving pensions in comparison with both previous and future ones. The problems young people face in entering the labour force should be addressed. Moreover, certain countries (for example Italy) are suffering from a brain drain, which generates implicit cross-subsidies between countries. The final remark from the panel was that a European-level social contract could be a potential solution to address this issue while enriching social cohesion in Europe.

Event notes by Jaume Martí Romero, Research Intern

VIDEO RECORDING

Materials and Relevant reading

Presentation | Torben Andersen
Presentation | John Driffill
Presentation | Pia Hüttl
EEAG reports
The growing intergenerational divide in Europe | Pia Hüttl and Guntram Wolff

Schedule

Feb 22, 2016

12:30-13:00

Check-in and lunch

13:00-13:30

Presentation

Torben M. Andersen, Professor, Aarhus University

John Driffill, Chair, EEAG and Professor, Birkbeck College

13:30-14:30

Comments and audience Q&A

Chair: Guntram B. Wolff, Director

Pia Hüttl, Affiliate Fellow

14:30

End

Speakers

John Driffill

Chair, EEAG and Professor, Birkbeck College

Torben M. Andersen

Professor, Aarhus University

Pia Hüttl

Affiliate Fellow

Location & Contact

Bruegel, Rue de la Charité 33, 1210 Brussels

Matilda Sevón

matilda.sevon@bruegel.org +32 2 227 4212

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