Demography, Sustainability, and Growth Notes on the future of the European "Social Market" Economy

In most European countries, a rebalance of the excess of Pay-as-You-Go financing for pension and health expenditure is important, to reduce the current and expected future pressure on public finances. A debate should be promoted on how to achieve an optimal design, which combines PayGo and real accumulation plans. In general, a few priorities can be outlined for a new dialogue on the future of the European Social Market Economy: 1) Increase the technical quality of pension and health care expenditure projections incorporated in the annual Stability Programs of EU Partners, developing adequate sensitivity analysis around the central scenario through sound stochastic models (A stress test on fiscal sustainability of welfare systems); 2) Strengthen the link between medium-long term projections and the economic policy guidelines that EU Partners indicate at the end of the discussion session of Stability Programs; 3) Strengthen the link between the policy guidelines at European level and the annual budget of each Partner; 4) Promote a debate on the future of the European Social Market Economy, with a specific focus on the consequences of the status quo for States and individuals, as well as for economic growth and fiscal consolidation; 5) Promote a debate on how to achieve a balance between PayGo and capitalized funds to finance age related expenditures for pensions and health. Such an effort could contribute to set up a common ground to coordinate welfare systems among Member States, with positive effects on the mobility of labor and capital.