In an unprecedented move for an institution whose independence is so vital to its cause as it is in the case of a central bank, Mr Lorenzo Bini Smaghi, member of the Executive Board of the European Central Bank has called for legal constraints on democratic institutions to ensure the intergenerationally sustainable funding of pensions systems in Europe. The call comes with a succinct analysis of the poor performance of democratic institutions with regards to intertemporal distribution, using the examples of inflation, where the cure is independent central banks, and public debt, where it is the Maastricht Treaty. The objective of such a Pensions Treaty would be to "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".
This important speech is another proof that the fictitious generation treaty has been introduced and broken at the same time by the present generation, and it proposes an interesting and perhaps workable solution, which will probably also require an independent Pensions Authority to supervise the implementation of the Pensions Treaty. It is however very courageous and uncharacteristic of the ECB to take on this contentious issue.