La evocación de sentimientos en los sujetos para comprender el fenómeno del egreso

SYNTHESIS

2.2.1. Background

The Stability and Growth Pact (SGP), enacted in 1997, enjoined Member States to respect the medium-term budgetary objective of positions close to balance or in surplus. The reform of the SGP in 2005 foresaw that this uniform objective should become country-specific, so as to account for the diversity of economic and budgetary positions and developments as well as the diversity of risks to the sustainability of public finances. In the revised SGP, (2_{) Member States}

are required to achieve medium-term budgetary objectives (MTOs) that pursue a triple aim: (i) provide a safety margin with respect to the 3%- of-GDP deficit limit of the Treaty; (ii) ensure rapid progress towards sustainability; and (iii) given the above, allow room for budgetary manoeuvre. The MTOs are defined in structural

(1_{) An increase in energy prices increases the wage share if}

producers do not fully compensate increase in production costs. This is expected to be the case at least over the short term. An increase in the competition in products markets decrease the mark-up and therefore increase the wage share. An increase in interest rate increases the cost of capital and therefore reduces the wage share. (2_{) Council Regulation (EC) N°1466/97 of 7 July 1997, as}

amended by Council Regulation (EC) N°1055/05 of 27 June 2005.

terms, i.e. net of cyclical and one-off and other temporary factors (1_).

As regards the second aim of the MTOs, the country-specific structural budget balance that ensure rapid progress towards the long-run sustainability of public finances should be based on a comprehensive assessment of liabilities, both explicit (current debt level) and implicit (expenditure increases arising from population ageing). Since such an assessment requires the clarification of a number of conceptual and methodological issues, the Council concluded that until criteria and modalities for taking into account implicit liabilities are appropriately established and agreed by the Council, the country-specific MTOs be set on the basis of the current government debt ratio and potential growth, while preserving a sufficient safety margin against the risk of breaching the 3% of GDP reference value. Moreover, the Council Regulation 1466/97 as amended by Council Regulation 1055/05, which codifies the preventive arm of the reformed SGP, stipulates that the country-specific MTOs of euro area and ERM II Member States shall be within a defined range between -1% of GDP and balance or surplus, in cyclically adjusted terms, net of one- off and temporary measures.

According to the ECOFIN Council Conclusions of 9 October 2007, the criteria and modalities for taking into account the resulting implicit government liabilities in the definition of MTOs should be established and agreed in the course of 2008, so that Member States can present MTOs in accordance with the new arrangements in the 2009 updates of their SCPs (2_).

2.2.2. Ongoing work

The incorporation of implicit government liabilities into the definition of MTOs will benefit from the updated long-term projections of the budgetary cost of ageing. These projections are carried out by the Commission and the Member States in the Economic Policy

(1_{) See Council of the European Union, Presidency}

Conclusions, 7615/1/05 REV 1, ANNEX II, 23 March 2005.

(2_{)http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pr}

essData/en/ecofin/96375.pdf

Committee (EPC) according to a common methodology and will be available in the course of 2009, in time for the periodic revision of the MTOs as stipulated by the SGP.

Following the Progress Report submitted by the Commission in 2007, which sketched out broad options on how to incorporate implicit liabilities into the MTOs, an operational definition of MTOs based on work by the Commission's services is currently discussed by the Ageing Working Group of the Economic Policy Committee and by the Economic and Financial Committee. The key outstanding issues are summarized below.

Degree of front-loading and national ownership

There are only three ways to preserve sustainability of public finances in the face of budgetary costs from demographic ageing. The first is to reduce the implicit liabilities, i.e. reforming the public social security system so as to reduce the claims of future benefit recipients. The second is to reduce public spending in areas other than social security to fund the increasing social security cost. The third is to increase tax rates. The choice of the mix and timing of those policies depends eventually on intergenerational equity considerations.

In this context, current fiscal policies can contribute to pre-finance the budgetary impact of ageing population by reaching over the medium term higher primary surpluses than required to stabilize the debt ratio. This strategy enables, in a first phase, to reduce debt or to accumulate financial assets in a public fund. In a second phase, when the budgetary impact of ageing starts to materialize, additional age-related expenditure can be financed not only by these savings but also by the reduction in interest payments or the returns on the financial assets accumulated in the first phase. Full front-loading

would pre-fund all future ageing costs over an infinite horizon. A degree of front-loading lower than 100% is an implicit promise to bridge the remaining gap towards a fully sustainable fiscal position at a later point in time through (further) structural reform of age-related spending programmes, an increase in the tax burden or a

decrease in the scope of goods and services publicly provided.

There is general agreement that the required balance, i.e. the budget balance that fully frontloads the cost of ageing, provides the correct starting point for incorporating implicit liabilities. Yet views diverge on how much freedom should be allowed in determining the degree of front-loading of the cost of ageing. It can be argued that Member States should retain the right to decide on the degree of pre-funding of the cost of ageing, since the design of social policy would be in their responsibility. It is clear that by choosing their MTO, Member States would equivalently choose their degree of front- loading and, therefore, make public what remains to be done through future budgetary adjustment or pension reforms after the end of the programme.

However, leaving governments completely free to determine the degree of front-loading could come into conflict with the aim of the MTO of ensuring sustainability. The conflict may arise in particular in the case of a country where the current budgetary position appears sound, but falls short of providing sufficient margin against the projected increase in age-related expenditure. According to this view, a minimum degree of front-loading is necessary to satisfy the objective of ensuring progress towards sustainability. Moreover, allowing full freedom in the choice of the degree of front-loading would weaken the link between MTOs and implicit liabilities, providing little reward for countries actually implementing a pension reform or incentives for countries to maintain already enacted pension reforms.

High-debt countries: the relative importance of implicit and explicit liabilities

The incorporation of implicit liabilities in the MTO should not cause losing sight of the role of outstanding debt in defining a prudent budgetary strategy. Full pre-funding of the cost of ageing can be consistent with stabilisation at or a slow reduction from very high levels of explicit debt. For example, a high-debt country, with no cost of ageing to front-load, could target a deficit that stabilizes debt at its current level, i.e. a significant deficit. Such a strategy is fully

consistent with the intertemporal budget constraint under the assumption of no uncertainty. Yet, in case of a prolonged period of low growth or high interest rates, a high-debt country may be forced to adjust its policies more rapidly and more dramatically than a low-debt country: taking into account a more uncertain world, such a budgetary strategy can be hardly considered as a sustainable (or even safe) budgetary strategy. Moreover, maintaining high debt levels is not consistent with the limit set by the Pact. There should therefore be specific safeguards that ensure that MTOs lead to a steady reduction of the debt ratio for high-debt countries.

The strictness of the debt-reduction requirement has to be defined. This depends essentially on the relative weights given to two objectives of the MTO: debt reduction (explicit liabilities) and pre-financing future rises in social security spending (implicit liabilities). Either stricter MTOs could be set for high-debt countries until debt is effectively reduced below the reference value (1_{) or an additional fiscal adjustment for}

high-debt countries could be added on top of the requirement to pre-fund part of the ageing costs. The first option gives clear priority to debt reduction with the argument that implicit debt, being based on long-term projections, may carry some margin of error; moreover explicit debt is more likely to have detrimental cross-borders spill-overs than implicit debt, which can always be dealt with through social security reforms. However, a strict dominance of explicit debt may lead to identical MTOs for high-debt countries with different cost of ageing, thus reducing the incentives to make ambitious pension reforms or to resist pressures to reverse already implemented reforms. The second option would give less priority to debt reduction and more weight to implicit liabilities. This way, pension reforms (or reversal thereof) are reflected in the medium term objective for all countries.

Low-debt countries

Low-debt countries do not pose an immediate threat in an economic and monetary union. Yet,

(1_{) In practice, this means that the MTO is subject to a}

requiring to pre-fund, even partially, the cost of ageing may result in an unnecessarily tight constraint on fiscal policies. Countries with a very low debt ratio may wish to raise it, for example by increasing public investment. In particular, while a policy of delaying budgetary adjustment to deal with demographic ageing may be suboptimal for the country concerned, it can be argued that there is no risk of detrimental cross-border spill-overs as long as the debt remains relatively low. This argument finds support in the Treaty, which sets a reference value of 60% of GDP for the identification of "gross errors" when it comes to the stock of debt, and in the SGP itself, where one of the aims of the MTO to ensure the convergence of outstanding government debt towards "prudent levels". There is a consensus that specific consideration should be given to low debt countries, e.g. by allowing a budgetary room of manoeuvre consistent with their low debt level. Yet, the right balance between this budgetary room of manoeuvre and the need to pre-finance the cost of ageing, still has to be found.

Conclusions

MTOs are guiding the conduct of fiscal policy of EU Member States over the medium-term and play a central role in the reformed Pact. The MTOs have to be credible and attainable to appropriately guide the conduct of fiscal policy over the period covered by the programme (3 or 4 years) while fulfilling the –ambitious- objective to ensure progress towards sustainable public finances.

The determination of MTOs should also be flexible enough to accommodate for the diversity of strategies that countries can follow in view of financing the budgetary cost of ageing but should provide at the same time a sufficient degree of coordination of budgetary policy. The choice of the MTOs should finally be transparent and easily communicated to the public to ensure national ownership. At the same time, the framework should be rich and complex enough to take into account the large diversity of budgetary situations in the EU. Progress on those issues has been made but no final agreement has been reached and the exact modalities have yet to be agreed.

2.3. NO-POLICY-CHANGE SCENARIOS OF