Global Finance and Social Europe
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Global Finance and Social Europe

Edited by John Grahl

With global finance reshaping the world economy, this insightful new book provides a full account of the EU’s financial integration strategy, together with a critical assessment arguing the case for social control over global finance. Written by acknowledged experts in European finance, this book discusses key issues from finance to general social developments, encompassing social security systems, employment relations, household saving and borrowing, and the question of economic stability. Thus far, America has been pre-eminent both in global financial markets and international banking – so how should the European Union meet this challenge? Global Finance and Social Europe constructively argues that an active response is required and highlights the importance of an integrated European financial system.
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Chapter 13: Protection of the Elderly Against the Risks of Capital Markets: The Advantages of Public PAYGO Pension Systems

Jörg Huffschmid


Jörg Huffschmid PRINCIPLES UNDER PRESSURE 13.1 It has been one of the major historic achievements of the European welfare states that they regard – notwithstanding their many differences – a decent living for the elderly as a public good and a matter of social responsibility, which can be complemented and enhanced but not replaced by individual responsibility. People who have worked for decades should be entitled not only to be protected from old age poverty but to roughly maintain their living standards during their period of retirement. For the large majority of EU member countries this responsibility has led to mandatory public Pay-As-You-Go-systems (PAYGO), which represented 83.5 per cent of all pension payouts in the EU at the end of the 1990s.1 These systems reflect an intergenerational contract through which the working population pays – via taxes or contributions on their incomes – the pensions for the retired part of the population. The pension of the now active population will in turn be paid by the following generation and so on. In such a system of direct and immediate transfer of money from one part to another part of the population, financial markets do not play a relevant role (except as a medium for this transfer or for short-term cash management). Even in countries where large parts of the pension systems were organized via collective pension funds and individual savings and are therefore dependent on performing financial markets – the UK, Sweden and the Netherlands – they were regulated in a way which made them...

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