European Public Finances

The EU budget is indeed facing unprecedented challenges which may have profound impacts in the size and structure of the post-2020 multiannual financial framework (MFF). One of the greatest challenges will be to handle the impact of Brexit on the EU budget’s revenues. This is not only a budgetary issue; it may well entail a shift in the ambitions of EU action as well as in its focus. Part of the foundations of Brexit are also to be found in the EU budget and should not be ignored.
The EU is under pressure to deliver in critical areas such as economic growth, environmental protection, climate change, security and migration. Depending on the role the EU will be expected or have to play, this may have considerable budgetary implications.
But the challenge is also how to adapt the budget given its limited (and unlikely to be increased) size. There is also a risk that member states, rather than focusing on Europe’s changing needs, will fall prey to pork barrel politics in order to protect their receipts from the EU budget.

This report analyses the economic and budgetary impact of an ageing population over the long-term.

In 2010, the ECOFIN Council gave the Economic Policy Committee (EPC) a mandate to update its common exercise of age-related expenditure projections by 2012 on the basis of a new population projection by Eurostat.

The long-term age-related expenditure projections provide an indication of the timing and scale of changes in economic developments that could result from an ageing population in a ‘no-policy change’ scenario. The projections show where (in which countries), when, and to what extent ageing pressures will accelerate as the baby-boom generation retires and average life span in the EU continues to increase. Hence, the updated projections of age related expenditure and the associated sustainability assessments provide important insights on both the economic impact of ageing and the risks to the long-term sustainability of Member States’ public finances reflecting new economic environment, affected by a durable impact of the current crisis, and further reform effort by EU MS.
This report, presented to the ECOFIN council in May 2012, details the expenditure projections covering pensions, health care, long-term care, education and unemployment transfers for all Member States.

The report is structured in two parts. The first describes the assumptions underlying the population projection, the labour force projection and the other macroeconomic assumptions. The second part presents the projection of expenditure on pensions, health care, long-term care, education and unemployment transfers. A statistical annex gives a country-by-country overview of the main assumptions and results.