Article European handling of implicit and explicit government debt as an obstacle to the funding-type pension reforms Jo ´ zsef Banya ´r Corvinus University of Budapest, Hungary Abstract In light of an analysis of Hungarian experience and as a result of the lessons that can be learned from it, I show in this article that the terms of the Stability and Growth Pact (SGP, the so-called ‘Maastricht criteria’) are barriers to a desirable reform of pay-as-you-go (PAYG) type pension systems. Following on from this, a proposal to modify these criteria so that this problem is eliminated is presented. The main problem with the SGP is that it only deals with explicit government debt and ignores implicit debt. Although it renders reforms politically palatable, it will increase overall debt in the curse of reducing the explicit one. I also review the rationale and possible types of funding of pension systems and propose a simple model for identifying the likely time-span of the transition from a PAYG system into a fully funded one. Keywords Stability and Growth Pact (SGP) pension reform, funding, explicit government debt Introduction In this article, on the basis of an analysis of the Hungarian example and by generalising from the lessons that can be learned from it, I show that the terms of the Stability and Growth Pact (SGP, the so-called ‘Maastricht criteria’), are barriers to achieving the most desirable reforms of reforms to pay-as-you-go (PAYG) type pension systems. In addition, a proposal to modify these criteria in such a way that this problem is eliminated is put forward. The structure of the article is as follows: in Part 2, I outline the Hungarian pension reform that aimed at partial funding, emphasising its macroeconomic significance and looking at why a reversal was politically rational (while still noting that, in the long run, it was not advantageous). Corresponding author: Jo ´ zsef Banya ´r, Corvinus University of Budapest, 8. F} ova ´m te ´r, H1093, Budapest, Hungary. E-mail: banyarj@gmail.com European Journal of Social Security 2017, Vol. 19(1) 45–62 ª The Author(s) 2017 Reprints and permissions: sagepub.co.uk/journalsPermissions.nav DOI: 10.1177/1388262717697746 journals.sagepub.com/home/ejs EJSS EJSS