robert_de_molesme
21.07.03, 10:23
Europe's population implosion
Jul 17th 2003 - From "The Economist" print edition
Europe's population is shrinking and greying—with grim consequences
THE convention on Europe's future finally packed its bags last week in
Brussels. At one of the many events to celebrate its achievements, Valéry
Giscard d'Estaing, an elderly former president of France who has been
chairing it, was asked to address an organisation called Friends of Europe.
With unintentional irony, the event was held in the dinosaurs' hall of the
Natural History museum in Brussels. The image of a 77-year-old man standing
in front of a diplodocus was uncomfortably apt. The dramatic change in
Europe's demographic profile will weigh far more heavily on the continent's
future than the institutional minutiae that have been preoccupying the
conventioneers.
Fertility rates across Europe are now so low that the continent's population
is likely to drop markedly over the next 50 years. The UN, whose past
population predictions have been fairly accurate, predicts that the world's
population will increase from just over 6 billion in 2000 to 8.9 billion by
2050. During the same period, however, the population of the 27 countries
that should be members of the EU by 2007 is predicted to fall by 6%, from
482m to 454m. For countries with particularly low fertility rates, the
decline is dramatic. By 2050 the number of Italians may have fallen from
57.5m in 2000 to around 45m; Spain's population may droop from 40m to 37m.
Germany, which currently has a population of around 80m, could find itself
with just 25m inhabitants by the end of this century, according to recent
projections by Deutsche Bank, which adds: “Even assuming (no doubt
unrealistically high) annual immigration of 250,000, Germany's population
would decline to about 50m by 2100.”
Europe's stability and growth pact
Jul 17th 2003
Brussels
Immigration and asylum
Pensions and ageing
The UN's statistics department and population division have information on
world demographic trends. See also the French Institute of International
Relations.
Combine a shrinking population with rising life expectancy, and the economic
and political consequences are alarming. In Europe there are currently 35
people of pensionable age for every 100 people of working age. By 2050, on
present demographic trends, there will be 75 pensioners for every 100
workers; in Spain and Italy the ratio of pensioners to workers is projected
to be one-to-one. Since pensions in Germany, France and Italy are paid out of
current tax revenue, the obvious implication is that taxes will have to soar
to fund the pretty generous pensions that Europeans have got used to. The
cost is already stretching government finances. Deutsche Bank calculates that
average earners in Germany are already paying around 29% of their wages into
the state pension pot, while the figure in Italy is close to 33%.
Governments are in a bind. It is no accident that in the past year France,
Austria, Italy and Germany have all experienced angry outbreaks of labour
unrest, sparked by attempts to make their pension systems less generous. But
the longer governments wait, the worse the problem. Pension obligations will
only get more onerous; and as voters age it will become ever harder to
persuade them to cut pensions back. A struggle for resources will emerge
between generations. Pensioners will press for higher taxes to fund the
pensions and health care they believe they have been promised. Younger
workers will demand cuts in increasingly onerous taxes.
Tensions are also likely between countries in the European Union. Britain and
the Netherlands, which have high levels of private-pension provision and
whose populations are predicted to remain more or less stable, are better
placed to cope with the pensions problem. But they might still be affected by
the financial problems of other EU countries, which could force up interest
rates across Europe and undermine the euro. The fact that Europe's population
is shrinking and ageing will inevitably also affect the aspirations of some
Europeans to create a superpower to rival the United States. A recent report
from the French Institute of International Relations predicts that, by the
middle of the century, the EU's GDP will be growing at just over 1% a year
compared with more than 2% in North America and at least 2.5% in China. The
EU, the report gloomily concludes, faces a “slow but inexorable ‘exit from
history' ”.
But while the EU has a rich, old and shrinking population, countries on the
Mediterranean's other side have poor, young, growing ones. The tide of
immigrants, legal and illegal, crossing the sea is an obvious reaction. So
shouldn't Europe be more liberal about immigration, to redress its population
imbalance? An appealing idea. But the OECD calculates that immigration might
have to be between five and ten times its current level just to neutralise
the economic effects of ageing populations. Even today's inflow is causing
political strains, with anti-immigration politicians like France's Jean-Marie
Le Pen, Italy's Umberto Bossi and the Netherlands' late Pim Fortuyn popping
up all over Europe.
A very European muddle-through
Persuading Europeans to have more children is the obvious alternative answer.
Part of the problem may be what Italians call the “partial emancipation” of
women, who are free to go out to work but are then still expected to bring up
children, look after the grandparents and do the housework. Making family
life easier or less expensive might help keep up the population. France,
which has some of the most extensive state-funded child care in Europe, also
has one of its highest birth rates. Sweden boosted its birth rate in the
early 1990s by raising tax benefits for mothers. But the effect of that
tailed off after a while. And as well as being costly and unpredictable,
policies to encourage childbirth also make some Europeans uneasy, since they
are associated with authoritarian government.
So Europe will probably try to muddle through its demographic problem. There
will be some pension reform, a bit more immigration, more family-friendly
policies, higher taxes, growing fiscal problems for many governments and
slower economic growth. With luck the European Union will avoid or postpone a
really huge economic crisis. But the political and economic renaissance of
Europe that was predicted at the European convention is likely to be
stillborn.
