Thursday, January 22, 2009

New Paper: “Measuring the Unfunded Obligations of European Countries”

The National Center for Policy Analysis has released a paper by Jagadeesh Gokhale titled "Measuring the Unfunded Obligations of European Countries." Gokhale applies the same methods he has used in measuring unfunded obligations for the United States – such as in this AEI book – to the countries of the European Union. The results are sobering:

…all European countries have large unfunded liabilities — the difference between the projected cost of continuing current government programs and net expected tax revenues. In general:

  • The average EU country would need to have more than four times (434 percent) its current annual gross domestic product (GDP) in the bank today, earning interest at the government's borrowing rate, in order to fund current policies indefinitely.
  • At the low end, Spain would need to have almost two and one-half times (244.3 percent) its annual GDP invested.
  • At the high end, Poland would need to have 15 times its GDP invested in real assets, forever!

No EU government has made the necessary investment.

Click here to read the whole paper.

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