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“The solution is not simple, but may require new constitutional rules that limit discretion in decision-making.
“To be sure, never has it been more important for those that have the responsibility to represent public interest to ensure that these interests are represented not only at a given moment in time but consistently, across generations.”
He concluded: “Yet in view of the financial and political turmoil we will be facing a few years from now, we may in fact have to resort in the future to some kind of legal constraint à la Maastricht Treaty in order to resolve the pension problem.”
He was speaking at on the topic of ‘Democratic representation and economic policy rules in an ageing society’.
There was a “time inconsistency problem” whereby young people today have an unexpectedly large burden in paying for the their parents’ pensions due to demographic changes.
“Population ageing axacerbates the problem because it increases the cost offloaded onto future generations,” Bini Smaghi explained. “The concept of ‘no taxation without representation’ which is at the origin of liberal democracies risks being violated.”
He added: “In most countries there are still no constitutional constraints which would link in a quasi automatic way benefits and the retirement age to contributions and to the average life expectancy, so as to prevent one generation from being paid its pension by the next generation, with benefits that the latter generation could not itself hope to enjoy.”