Lessons from the European Sovereign Debt Crisis for China
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Stable exchange rates and monetary policy among EU Member States are good for market integration, but did not extend to social welfare systems as such. This chapter shows that differences in national pension schemes can undermine the stability of the monetary framework and lead to disintegration.
From 2009, European countries like Portugal, Italy, Greece and Spain (PIGS) fell into a sovereign debt crisis. In this chapter we argue that PIGS countries rely heavily on the public pension pillar. At the same time they have limited private pensions, so they face a public pension payments shortage which would make a public fiscal crisis worse. By contrast, other countries like the Netherlands, Switzerland and the UK (NSU) have multi-pillar pension systems; and their substantial private pensions make their public fiscal systems more adequate, sustainable, and healthy.
China is currently facing enormous pressure as its population is ageing and the one-child policy has resulted in a decline in the working population. To avoid the pension and debt problems being faced by PIGS countries, China should learn from the pension system of the NSU to avert possible pension, public debt, and financial crises.
KeywordsEuropean debt crisis Multi-pillars Private pension Integration
JEL ClassificationG11 G15 K23
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