Title page

Contents

Executive summary 1

1. Introduction 2

2. Long-term fiscal pressures in the EU based on an application of the new EU fiscal framework 4

2.1. Using the European debt sustainability methodology to project long-term fiscal adjustment needs 4

2.2. Long-term assumptions 5

2.3. Baseline results 7

2.4. Alternative scenarios presumed to lead to increased sustainability risks 13

3. Policies 15

3.1. The quantitative impact of some stylised policies to reduce ageing costs 15

3.2. Country-specific recommendations to address demographic challenges 18

4. Conclusion 22

References 23

Appendix: Figures 3, 5 and 7, four-year adjustment periods 24

Table 1. Illustrative example of the impact of ageing costs changes on the fiscal adjustment in the non-ageing budget 8

Table 2. Baseline structural primary balance (SPB) paths to meet EU DSA requirements and maintain the deficit below 3% of GDP, 7-year adjustment periods,... 11

Table 3. Baseline fiscal balance paths: the impact of safeguards on the structural primary balance (% GDP) 12

Table 4. Implementation of European Semester CSRs related to demography, TFP and pensions 20

Figure 1. Baseline population projections for the EU 2

Figure 2. Baseline and alternative assumptions for six long-term debt drivers (EU27 average or total) 6

Figure 3. Baseline fiscal balance paths to meet EU DSA requirements and maintain the deficit below 3% of GDP, 7-year adjustment periods (structural primary balance,... 9

Figure 4. The impact on ageing costs and GDP growth of five alternative scenarios presumed to increase debt sustainability risks (EU average, relative to baseline) 13

Figure 5. Difference between structural primary balances required under scenarios leading to additional debt sustainability risks and under the baseline, 7-year... 14

Figure 6. The impacts on ageing costs and GDP growth of three alternative scenarios presumed to reduce debt sustainability risks (EU average, relative to baseline) 16

Figure 7. Difference between SPBs required under scenarios presumed to lower debt sustainability risks and under the baseline, 7-year adjustment periods (% GDP) 18

Boxes

Box 1. The ageing cost change-adjusted structural primary balance 8

Figure A1. (referring to Figure 3). Baseline fiscal balance paths to meet EU DSA requirements and maintain the deficit below 3% of GDP, 4-year adjustment periods... 24

Figure A2. (referring to Figure 5). Difference between structural primary balances required under under scenarios leading to higher debt sustainability risks and... 25

Figure A3. (referring to Figure 7). Difference between structural primary balances required under scenarios presumed to lower to debt sustainability risks and... 26