Compliance with the Stability and Growth Pact: An Economic Analysis of Emerging Pressures Relating to Pension Provision

Dale, Alan T (2012) Compliance with the Stability and Growth Pact: An Economic Analysis of Emerging Pressures Relating to Pension Provision. Doctoral thesis, University of Central Lancashire.

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The Treaty of Rome assigns overriding importance to price stability in the firm belief that maintaining stable prices on a sustained basis is a crucial pre-condition for increasing economic welfare and the growth potential of an economy. Price stability is given formal expression in the Stability and Growth Pact, which confines the budgetary freedom of Member States within precisely defined parameters. The European Union takes the view that by helping to create a favourable economic environment, sound monetary policy should secure the broad objectives of the Community laid down in Article 3. One of these objectives is the promotion of social justice and protection. The thesis focuses on an aspect of social protection: the provision of old age security. The realisation that current pension schemes in many Member States will not be fiscally sustainable has forced their governments to start the process of legislative reform. The challenge is to design pension systems that do not place too heavy a burden on members of working age, while still offering an adequate level of benefit to retired members. Pension system reform has often proved a particularly difficult and awkward political undertaking. The thesis argues that Member States with ageing populations will find it increasingly difficult to maintain high standards of social provision and still comply with the obligations of the Pact. It is contended that continuing demographic imbalance will be a constant impediment to the required maintenance of budgetary balance. Countries have implemented changes, such as increases in statutory retirement age, and reductions in replacement rate, so as to avoid further increasing the contribution burden borne by the diminishing proportion of workers. The thesis concludes that public pension design modifications, whether parametric, such as raising the retirement age, or systemic, such as the introduction of a funded component, will only alleviate and not solve the problem. The only answer is an increased number of younger workers, and that requires birth-rates to move towards replacement level.

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