Demographic pressure in the European Union

On top of the sovereign debt crisis in the European Union, demographic change is exerting enormous pressure on public finances. We analyse four policy options: lowering pension benefits, increasing labour market participation of the native population, immigration and participation of older people. Our results show that the most publically indebted EU economies face the highest increases in public spending on the retiring baby boom generations over the coming decades. Fortunately for these economies, it turns out that adjusting their labour market participation is easier than for their neighbouring economies within the EU. Increasing labour market participation to 60% keeps several countries largely out of the woods.