Evidence suggests, in particular, that after a country joins ERM II, it may experience large and volatile short-term capital inflows. Especially if coupled with a weak institutional set-up, this may set the wrong incentives, leading to the postponement of necessary reforms and a deterioration in the country’s adjustment capacity.
But the risk that DC schemes will deliver low income replacement rates is very serious also for young members. The disappointing performance of DC schemes over the last decade is likely to have sapped employees’ confidence in the ability of the financial markets to provide adequate and secure returns.