Who will pay for young people’s pensions? Filling the gaps with the capital markets union

Demographic ageing poses severe challenges to the sustainability of public pension systems in Europe. Many member states rely heavily on pay-as-you-go arrangements, which, combined with longer life expectancy and relatively low retirement ages, are generating persistent pension deficits. Traditional reforms, such as increasing the retirement age, raising productivity or adjusting benefits, have proven politically difficult due to deficit bias, the problem of political agency and widespread loss aversion. This article argues that, in addition to such measures, the EU’s capital markets union could play a central role in addressing pension shortfalls. By fostering deeper financial integration, the capital markets union could enhance investment opportunities, promote growth and reduce the vulnerability of member states to the sovereign-bank ‘doom loop’.