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Dear Aunty: a postscript to my essay on EMU

Julian D. A. Wiseman

Publication history: this is a postscript, on the subject of pension savings, to my ‘Dear Aunty’ letter of March 1997. Usual disclaimer and copyright terms apply.

5th March 2000

Dear Aunty,

Three years ago I wrote a long letter, explaining why a monetary union that crosses linguistic boundaries is a bad idea, why this particular European monetary union is worse, and why it is worst of all for the British.

This brief note is a postscript to that.

In my earlier letter, I remarked that the UK has over half of the EU’s private pension savings. As evidence of this, the following table is taken from page 24 of chapter 3 of the June 1999 edition of Practical Issues Arising From The The Euro, published by the Bank of England.

 Population 65 and over as % of population 15 to 64Projected pension costs 2040Private pension assets 1996Adjustment required to reach US level
 199020102030% GDP$ bn% GDP$ bn% GDP
AT22.427.744.0 31.113961.3
GR21.228.840.9 42.87459.6
LU19.925.944.2 00.2962.2
EU21.425.940.3 173020.9343541.5

So, in 1996, UK private pensions assets totalled $966 billion, some 1.26 times as much as the rest of the EU put together. To bring the UK’s level of pension savings down to the US level, the UK could run down its pension savings by $168 billion (about £105 billion). On contrast, to bring its level of pension savings up to the US level, the rest of the EU would need to increase its saving by $3600 billion (about £2250 billion). Three point six trillion dollars is a lot of money.

And pension savings are important. In 1990, the EU population over 65 was some 21.4% of the population aged 15 to 64. Hence, for every pensioner, there were 4.67 workers. By 2030 these numbers will have become 40.3% and 2.48 workers. These future pensioners will have fewer workers to support them, so must save for their own retirement. In the EU (except the UK and Netherlands), they haven’t been doing so.

At the time of writing, it seems that the UK’s EMU debate has been largely won by those opposed to scrapping the pound. But, unfortunately, despite having won that argument, it needs to be constantly re-won time and again. In previous referenda called by this government it has behaved as if it regards winning to be more important than playing fair: taxpayers’ money was used to finance the governing party’s campaigning, but not of its opponents. In most democratic countries that would be called cheating. Even in implementing Lord Neille’s recomendations, the government has altered them so as to allow itself as much room as possible to rig the electoral financing. Joining EMU might be good for the subsequent career of a British Prime Minister, who wishes to go on to be some form of European President, but is still bad news for the medium- and long-term prosperity of the UK and its inhabitants.

As always, with love from your nephew in the City of London.

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