 Good morning. We have a hard start with the webcast in 32nd so I'm going to welcome you all now. This is going to be a terrific session. I'm delighted to be moderating this, solving the economic generation gap. As you know I hope you know the IMF's pioneered discussion of inequality under Christine Lagarde, who is managing director. She has pushed this agenda with huge energy and huge success. And this morning she's going to be talking to us about a new study The IMF has been has put together on generational inequality in the EU and with then further ado it's my great pleasure Christine to welcome you, but just before you come up, please ask questions wef.ch forward slash beta zone, and we'll have a discussion afterwards. Yours. Thank you so much, Misini, and good morning to all of you. Thank you for being here. I wanted to start off this morning using an American point a nofalist. Langston Hughes. A rhaid i'n gweithio'r ddau, y cyfnod o'r ddweud yn ddechrau. Mae'r ddau o'r ddau o'r ddau o'r ddau o'r ddau, oes i ddau o'r ddau. Dwi'n gweithio? Dwi'n gweithio? Dwi'n gweithio? Dwi'n gweithio? A dyna'r ddau o'r ddau o'r ddau o'r ddau. -->It's a troubling equation the impact of unemployment... on the young and the long-term consequences of inadequate social protection. But we will also explore ideas that can actually help fix the problem... deal with the issues, try to reduce poverty, one of the SDGE goals and reduce inequality for the next generation. Yn y cyfnod o bwysig, y maen nhw'n gweithio'r ysgolwydd yma yn y gyfnod geni. Mae'n gweithio'r dystudio'r gweithio, a byddai'r maen nhw'n gweithio'r economiaeth yma yn gweithio'r cyfnod. Ond yna yma yng Nghymru? Let us concentrate on the European Union. Why did she pick the European Union? Ah, it is certainly not the only region where young people are facing headwinds. But we have taken advantage of what is available and the data collected on age groups in Europe over the last decade is helping us shine a spotlight on this particular problem. As you can see, average inequality has remained broadly stable. Here you go. And all of that since 2007. And this is in large part thanks to some social safety nets and redistribution mechanism that exists in Europe and not in other advanced economies for that matter. And it's an important achievement that has helped millions of people and it has strengthened Europe's position on inequality compared with other advanced economies. But this top line that you see here actually hides an underlying threats to European youth. The reality is that the gap across generations in Europe has widened significantly. Working age populations and especially Europe's youth are falling behind. Policymakers fail to act. This generation may actually not be able to recover. Now what has driven inequality across generations in Europe? There are many dimensions, many, including wealth, including gender discrimination. But I want to take a closer look at income. Income declined for young people after 2007 due to what? Predominantly unemployment. But they have since generally recovered. For those who are 65 and older, incomes have increased since the crisis. Why is that? Because pensions were better protected. Youth in Europe have amassed the highest debt relative to their assets of any age group. That means that many young people are going to be vulnerable to the next financial shocks and are putting off investing in their future. In short, those dream deferred that we were talking about, they've put them on hold. But incomes are only part of the story. Poverty is the other side of it. Before the global financial crisis, the relative poverty of the 18 to 24, and the older that is 65 and over was similar. Since the crisis, the gap has massively developed. Look, the reality is that one in four young people in Europe now live below the relative poverty line. The incomes are below 60% of the median. Now you might say sure that problem exists somewhere, but not in my backyard. Is it really happening across the continent? Well it is. Look at that. Now clear, some regions in Europe are experiencing more youth poverty than others. We can see the different rates between the regions, but everywhere we have seen an increase. That means that young people in every region are indeed struggling. How did we get here? Recessions and recoveries do not impact young people the same way as older people. Limited skills and experience often make it harder for young people to find work. In Europe, unemployment of course rose during the crisis of working age populations. But youth unemployment started high and spiked to what percentage? 24%, correct. 24% in 2013, he's an IMF advisor actually. So 24% in 2013, today it has improved a bit. Nearly one in five young people in Europe though. One in five cannot find work. And we know that there is a connection between unemployment and inequality. If anything is probably the first big inequality. Lost wages, lost savings can be extremely difficult to recover later in life. For those young people who are still looking for work, the problem does not even end when they find a job. Why is that? Because what has happened is that they've had long periods of unemployment. You know the forever stash, the forever internship, the non-remunirated experience. Well that can lead to scaring, scars that are left with them. And it means ultimately a lower probability of employment and lifelong depressed wages. Instead of dreams deferred, instead of dreams on hold, we're talking maybe about dreams buried. But it's not just unemployment that has led us to that point. Under employment and temporary contracts, as I said, became prevalent during the crisis. The rise of the so-called gig economy exacerbated the problem and further decreased job stability, particularly for the young people. And unfortunately the social safety net that exists in most European countries was insufficient to help the young who lost their job or could only find those part-time jobs. To following the crisis, non-pension social benefits were often curtailed, not indexed on inflation and sometimes narrowly targeted. This limited effectiveness of these programmes for the young people. Now let us be clear. Fiscal programmes such as pensions and social securities have helped millions before and after the crisis. And the point of our study is not to say it's them versus us. And certainly not to undermine what has been made available to the senior citizens. And we need to continue to protect them. But we also need policies that look out for the young and reflect the changing nature of work. In fact, some countries are actually doing it and making progress. Now of course you would expect me to quote Germany. And I do. Longstanding apprenticeship training programmes have helped Germany's young stay in the workplace. I know there are very recent numbers that are a little bit worrying, but in the main and certainly over the time of the crisis it has been very helpful. And Germany's flexible employment rules allowed young people to keep their jobs during and after the crisis. Today, German youth have the lowest unemployment rate of any European country. Now is it just all about Germany? No. Mr Prime Minister, Portugal. Policies and I'm not doing that because you're in the room. Policies were implemented to exempt first time job holders from paying social security taxes for three years. It has helped. In France, Prime Minister is not here but let's mention France. Labour taxes levied on employees are being reduced while a tax on total household income is being increased. This should help working age populations and rebalance some of the tax burden across generation. Now we at the IMF are also looking at it. Our work highlights policies that can help the prospects for young people around the world. In fact, we're launching a new paper today that focuses on youth inequality and poverty in Europe. And based on our analysis, I'd like to just mention a few policies that we believe could have a positive impact for young people. One, look at the labour market. To create jobs and incentivise work, policymakers can reduce social security contributions and taxes on low wage workers. There is discussion amongst the economies. Some will say, no, no, you have to go beyond that. We believe that at the low wage level it is the most efficient. To help improve future job prospects, governments should invest in education and training. This will allow young people to close the skill gap that we have observed. Second, countries can make government spending on social protection more effective. How? Part of the answer is to actually adapt social spending, especially unemployment and non-pension benefits to ensure that young people are better protected. Third, taxation. Since 1970, there has been a decline in wealth tax. And in some countries, not all, but in some countries, more progressive tax systems and wealth tax, including inheritance taxes, could help fund much needed social programmes for younger citizens. And as I said in the end, it is not one group, one age group against the other. Building an economy that works for young people creates a stronger foundation for everyone. Because after all, the young people are going to be the contributors to the pension schemes that are being honoured at the moment. And reducing inequality goes hand in hand with creating sustained growth and rebuilding trust within society. Now this is easy to say and none of this is easy to do. But each policy needs to adapt to the needs of countries, recognise political realities and stay within budget. So you may have heard me say that it's when the sun is shining that you need to fix the roof and that now it's time to act. Yes it is. Now why is that? Because of a recovery that is accelerating, because of growth that is really going to facilitate that globally, but in Europe in particular, where it had been long in the waiting. As I said, time to repair the roof when the sun is shining. I'm borrowing from John Fitzgerald Kennedy for his State of the Union address in 1962. Not all of you might know that he actually focused his speech and opened his speech, focusing on the next generation. Gloops, I forgot to click one, so it's the next one that I want you to see. That's the reason why it's necessary to do it now. In this moment of global growth and European recovery we have an opportunity to do the difficult things which might otherwise go and on. In Europe one of the ways to fix the roof is by designing the policies that will help the next generation. Help them reach their dream. We can help. There are tools, there are policies, there are best case stories. We can just make sure that we don't have to ask the question, what happens to a dream deferred? Thank you very much. Thank you, Christine, for that extraordinarily clear explanation of what is, I must say, an unbelievably striking set of statistics. I mean, I've spent a lot of time looking at IMF papers on inequality in various dimensions. And producing some in the early days. I did, very bad ones, a long time ago. No, no, no, no. The numbers in here are really striking. And that chart that you showed of the decline in elderly poverty since the crisis, but the rise in youth poverty is one that I think is absolutely striking. But it does beg, I think, an important question. And you laid out a list of policy priorities. But for me the political economy of this is interesting. And to be crude you say rightly it's not them versus us. But it's older people who vote and younger people who don't. And we have politicians in the room and maybe you would also like to weigh in on this. But first to you, Christine, and you are a former politician yourself. How do you get the political support for these kind of policies? You put the finger exactly where it hurts. Because there is a natural political economy tendency to focus on those who are going to give you their votes. And traditionally those people who vote most, all you need to do is look at the 2014 European parliamentary elections. There are countries where young people voted less by a margin of 20% relative to the median. And I think the vote on Brexit is another example where clearly generational divides actually operated as well. So how you move the political spectrum to the point where actually helping young people restoring hope, restoring trust. And we can discuss that forever and we're both concerned about that. We'll actually entice them to have a say in their future, to have control of their destiny. But if they have the certainty that the dreams will be deferred at best, buried at worst, what's the incentive? So I think, you know, it's, you know, where do you, is it the horses before the cards and what's the chicken and egg situation? So can you do the policies to make the younger people feel more hopeful? I would hope. And we have the Prime Minister of Portugal, maybe he can speak to the issue. But making decisions very early in the mandate is actually one way to deal with the political support and not expose yourself to the risk of losing the elderly vote. I don't know. I'm going to push you a bit more on that in a second. But first I want to make sure that everybody has the W, E, F, C, H, whatever. My eyesight is so bad I can't read it on there. Forward slash beta zone, because on this technology I don't actually have questions yet. And I assume that's because I'm not working it properly. And also you can use old fashioned technology and put your hands up if you have questions of the managing director. But the politics is incredibly important. But which of those policy areas, labour markets, redistributive taxation that may be trickier, where would you have a priority? And having looked at countries across Europe, can you point to some case studies of countries that others should look to for ways to go forward? And Portugal is right here, but maybe others too. You know, we've mentioned Germany, we've mentioned Portugal, we've mentioned France. And most of your policies actually are mixed between labour market and fiscal policies. Where do you lighten the burden of labour cost on young people? How do you adjust the training skills with the unemployment benefits and design that in incentives rather than a system that is often geared on inefficiencies? I think that that's what we've seen and I mentioned Germany, but I think it's in everybody's mind. But those are the three countries where clearly there are measures being taken. So labour markets is one where Germany is streets ahead. The other question there is how you fund this. And one question that I would have is you mentioned rather tantalisingly shifting a little bit more to wealth taxes. Presumably the elderly have more of the wealth. So do you mean property taxes? Do you mean broader wealth taxes? Should that be part of a broader rethink of the taxation system? You know, any finance minister is going to first of all think about the efficiency of collecting revenue and serving a budget that is going to be sustainable and healthy. But the second aspect of taxation, let's face it, is also redistribution. And there you're going to have the choice between this generational redistribution or the wealth redistribution or a combination of both. I would certainly argue that in order to incentivise young people there has to be a shift from generations to generations. And as a result that would eliminate it. So facto increased VAT no matter how more simple it is to collect. I guess property tax falls in the category of the potential redistribution. So think more about wealth taxes in terms of your tax structure. What about other forms of getting... Sorry, that's okay. Don't worry. I don't need them. You don't need lessons? No, no, no. We are big girls. Well, I can't see that. I can't see that either, so that's okay. But I can see your hands. It's not going to make us popular to argue that there should be wealth tax. That's why I'm asking you. Yeah, but let's face it. It's a trade-off. Are you better off with people who are disenchanted or unemployed, where you still have one out of five young people looking for jobs desperately, or having people who are a bit disgruntled because there is a smart wealth tax that actually helps redirect resources towards young people. It's going to be about accountability and a choice of society. One other side is the spending on elderly people. Of course, one of the great successes of welfare states across Europe, across the industrialized world has been to reduce elderly poverty. We should remember that we started from a terrible position. But now, as you have people living much longer, a greater and greater share of social spending is going on the elderly. One of the striking statistics in your report is that 53% of social spending in Europe goes on people aged 65 and above. That's going to rise as we live longer. Do we need to think, for example, even more about raising retirement ages? Do we need to think about more progressive retirement systems? There's just no question about it. And there are many European countries now where even in the mindset of people, 67 is the sort of targeted points. It might be worth thinking about beyond that. Having a system that, for instance, in Spain, they recently modified the pension system twice, 2011, 2030, if I recall, with indexation mechanism kicking in, with lifelong numbers actually triggering, putting off the retirement age, those are the systems that need to be put in place because we cannot have the increased benefits without having a degree of trade-off on the other side, whether it's by way of contribution, whether it's by way of extended working life. There's one wrinkle on that which is interesting and your paper brings it up, which is often politicians, when they bring in these reforms to pension ages, put them off. So they put them in the future, it'll be done in a decade's time or two decades' time. That means, of course, that it is actually young people who are hit again because today's young people are going to be tomorrow's senior citizens. So how do you get around that? I think the time gap between the moment when you vote the reform, if we take the example of Spain, I think the last one was voted in 2013, and it's kicking off in 2019. So it's only a six years' time lag, which might correspond to an electoral cycle, actually, for that matter. Interesting. But it should be as short as possible. I don't underestimate the difficulty of changing a pension mechanism. We did that when I was finance minister and it was really hard and we moved the needle only by two years. So it's worth trying. Probably because of my technological incompetence. I can't make this work. So could you please put up your hand if you have a question? Yes, the gentleman here. My question is around your pledge, your pledging European countries to take actions. Don't you think that now there is also an opportunity that European Union, so the countries together, put this topic as a topic for all Europe or European Union because really, as a company, we do a lot of activities to launch a programme on youth unemployment years ago. Really, we had to go country by country in order to make it effective. Why don't we do something together? What can I say? It's clearly, you saw the map, there are varying degrees depending on countries, but there is a common denominator, which is the worsening of the situation since 2007, and clear discrepancies and risk of putting one generation against the other for all countries. So when you have a common denominator and it's a new issue in a way because it doesn't be tackled yet in depth, maybe that's another area where in addition to security, energy, new technology or horizons, the Europeans could actually operate together. Gentleman at the back. There are lots of ideas about European restructuring and deepening, so maybe that's a good one. Can I come back to the issue of social spending and particularly pension spending? I'm a little bit puzzled when I hear raising the retirement age as the solution to the generational gap because it's just going to affect people who will retire later or the people who are now 65 and plus. But assume that there is continued improvement in living conditions. Essentially the life expectations grows at the moment by one month per year. So you can't just exclude that as one of the options. It's not the only option. No, but I'm going to ask you whether we should go further and touch the existing pension benefits when they're not linked to contributions, which is often the case, especially in South and Europe. Now, would you be in favour of that? So reducing pension benefits not linked to contributions for the existing seniors. And there is an additional problem, however, which are constitutional issues. Sometimes, I think, including in Portugal, the constitutional court raises problems about acquired rights and things like that. Now, how do we go around that? You know, on the existing benefits, point number one, it's a tricky political dilemma. How do you negotiate that? And who do you negotiate with? That's point number one. Point number two, there are circumstances where it's just inevitable. And, you know, it's finally moving that country in the right direction, hopefully. But in the case of Greece, the pensions were totally out of line with the equivalent, you know, with their counterpart, medium, small and high pensions. They were way above. And they just had to tackle that. I think what matters at that point is how much of a safety net do you keep and at which threshold do you actually protect pensioners who should not be affected by a reduction of the pension spending. That was vastly misunderstood, if I may say, when the Greek programmes were put in place and negotiated. I remember hearing lots of criticisms against the European Commission, against the IMF, about are you going to, you know, these poor pensioners will be destitute. Well, you know, it goes down to then the details and who gets what and when and who do you protect. So I think that there are countries where that needs to be looked at. Just for the medium and longer term stability and sustainability of those economies, when those changes are not made, the pension mechanisms just go into the wall and everybody is to lose. So that would be my point. We have time, if you're very brief, for one more question. Gentleman here. I wanted to ask you, Ms Lagarde, global shapers are young people with dreams and the ability to deliver on them. Thank you. How can we implement this kind of policies in Latin America where, I mean, in a region where cutting social benefits could be very dangerous for a large amount of population? You know, you put your finger on something which is difficult because while it's all very safe and well to say we have to preserve the social safety net, relative to the fiscal position of countries, when it applies to, say, 20% of the population, it can be manageable. When it applies to 60% of the population because even the middle class is at risk, then it becomes an issue. I have some hope that many of the Latin American countries are actually concerned about that. There are specific programs that are now being put in place that are some of them safeguarded, whether it's in Brazil, in Mexico. I think what your government is trying to do to sanitize the fiscal situation, but also make sure that there is a degree of safety net. It gives us a bit of hope, but, of course, more needs to be done. I'm afraid we're out of time. Christine, thank you so much for raising an incredibly important issue, for highlighting it in such a professional manner. Do you allow me to mention one thing? We have focused on Europe, and I wouldn't want everybody leaving this room thinking, oh, this is a European problem. No, no. We have data for Europe, which is why we focus on Europe. There are lots of other countries that are probably in a worse position than what we have showed you, but still have a look at the special paper. You've looked at all dimensions of inequality in a whole zoo of very, very good papers. I recommend you read this one and the IMF's other ones. Thank you so much.