Strategic Panorama 2009 - 2010 - IEEE

The global recession and its impact on international economic relations
the countries’ public accounts are in much worse shape than before the
crisis in terms of both public deficit and public debt as a percentage of
GDP. Uncontrolled growth of debt is dangerous in any situation, but as the
baby boom generation will start to retire in the coming years in the wealthy
countries, it will be necessary to issue huge amounts of debt to finance
pensions and greater health expenditure, and it would therefore be desirable
for public finances to be looking as healthy as possible—something
that the crisis has made much more difficult
Indeed, according to the European Commission, the crisis has caused
debt to increase by 20 percentage points of GDP, more or less the same
as in previous crises. However, there are two particularly worrying facts.
The first is that the debt increase has occurred in a context in which the
debt-to-GDP ratio was already fairly high in historic terms in nearly all the
countries (not Spain and Ireland).
The second fact, which is linked to the foregoing, is that this debt
increase comes at a time when new (and larger) issues of debt are expected,
owing to population ageing. It is calculated that from 2015 onwards
expenditure on pensions and healthcare will begin to grow rapidly and
more so in countries that have not yet reformed their pension systems.
The European Commission’s 2009 Ageing Report estimates that the rise
in ageing-linked expenditure over the next fifteen years will be equivalent
to 5% of GDP in Spain, 3.5% in Germany and 3.3% on average in the
27-strong EU. This is slightly less of a problem for the United States,
because its population is younger and because the public education and
health systems are less generous than in Europe (Japan faces the same
challenges as the European Union).
Action is therefore required on two fronts: institutional reforms to ensure
fiscal consolidation in the long term; and structural economic reforms to
boost growth potential thereby facilitating a better debt-to-GDP ratio.
The first group of measures will require institutional reforms in order
to allow progress towards fiscal consolidation and ensure high budgetary
surpluses (not simply a balanced figure) during expansive periods. We
may therefore expect to witness the widespread adoption of fiscal regulations
such as the Spanish Law on Budget Stability (Ley de Estabilidad
Presupuestaria) and the European Stability and Growth Pact, which «tie
the government’s hands» by correcting its tendency towards excessive
spending. Another is the setting up of Independent Fiscal Councils (institutions
based on the model of independent central banks) whose opinions
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