return guarantees, it is clear that the hedging of financial market risks does not come without cost. a higher incidence of fixed - income instruments may take its toll on portfolio returns ; the use of derivatives or third - parties guarantees implies the payment of fees. with intertemporal smoothing of returns, good investment years subsidize bad investment periods, with a the very hypothesis of ergodicity of most economic and financial time series has been questioned from time to time ( se, for example, davidson, 1991 ) and becomes hard to believe in crisis periods. for the long - standing debate on the pros and cons of equities compared with bonds and the asset allocation of long - term investors, see campbell and viceira ( 2002 ), siegel ( 2002 ), bodie and clowes ( 2003 ), merton ( 2006 ) and blake, cairns and dowd ( 2008 ). potential redistribution of investment income across plan members. therefore, all these forms of protection from investment risks may result in lower net - of - fees returns. if these are not offset by higher contributions during the accumulation phase, they lead to a lower pension during the decumulation stage – i. e. lower returns imply lower consumption, either during working age or in retirement or both. more importantly, market - based solutions cannot protect investors from strong aggregate shocks hitting several asset classes and economic sectors at the same time. in such an event, aggregate wealth is not only redistributed across individuals and sectors, but it is also destroyed. one might argue that in such exceptional circumstances there is a straightforward solution : a public rescue of pension funds by the government ( especially when enrolment is mandatory rather than voluntary ). a bail - out of pension fund members would always be an available policy option, provided that it were limited to workers who are close to retirement and unable to take advantage of a possible recovery of asset prices over medium - to long - term horizons. however, a bail - out of pension fund members should always remain the last option for two well - known reasons : it is costly to taxpayers and it may encourage opportunistic behaviour by pension funds in the future. a more sustainable and efficient form of protection could come from some kind of collective inter - generational arrangement. one possibility is that of hybrid pension plans, such as those previously mentioned, in which participants transform their risky claims into guaranteed claims as they become older. 20 in practice, younger workers would partly

monetary union depends on their causes, size and persistence. what are the facts about the relative macroeconomic performances of euro area member countries? and what is the diagnosis about the causal factors and the underlying processes that explain them? i would like to point out two interesting facts that are contrary to popular perceptions. the first is that during the first six years since the creation of the euro, the growth and inflation differentials observed between member countries have not been greater than those recorded in the 25 years before the establishment of emu. on the contrary, according to some measures, the dispersion in growth rates has recently reached a historically low level. the second fact is that both growth and inflation differentials in the euro area since the introduction of the euro have been broadly of the same order of magnitude as the corresponding differentials observed across regions and metropolitan areas in the united states. these facts would seem to suggest that, at least on the basis of size, the heterogeneity observed in the macroeconomic performance of euro area member countries is not exceptional and thus need not be a cause of alarm. nevertheless, there are certain other developments that suggest caution and point to the need for a deeper and more comprehensive analysis. one such development relates to the significant and persistent divergences in measures of competitiveness between member countries. the diverging competitiveness is a consequence of various factors and policies as well as of market adjustment mechanisms, which in some cases reflect rigidities in labour markets and the low degree of integration and competition in certain product markets, particularly for services. the persistence of these developments suggests that adjustment mechanisms are functioning slowly and that self - equilibrating forces are not sufficiently strong. the extent and the cumulative effects of differences in competitiveness between some euro area countries raise concerns about their impact on growth. in addition, other factors – some exogenous, such as competitive pressures resulting from globalisation, and some internal, influencing consumer sentiment – affect economic activity and tend to compound the adverse effects of the erosion of competitiveness in some countries or partly offset the benefits from the increased competitiveness attained in other countries. a better understanding of the factors and processes that determine economic fluctuations, inflation persistence and competitiveness developments across the euro area countries will contribute to the diagnosis of the present situation and the assessment of future trends. two papers in this workshop provide insights and useful results to this end. the extent of synchronisation of economic activity in europe is examined in the paper by domenico giannone