Europe’s Demographic Disaster

Ageing

If “demography is destiny” as French philosopher Auguste Comte once put it, Europe’s future looks distinctly bleak. Over the next 35 years its “Old World” nickname looks set to take on a whole new meaning, with the proportion of over 65s in the population projected to reach 29% in 2050, up from 17% in 2005 and barely 8% sixty years ago. For the first time in history their number will exceed that of children under 15, with certain countries such as Germany and Italy seeing more than three times as many retirees as schoolchildren. Aside from the significant social and cultural challenges this implies, Europe’s most pressing problems will remain economic. With 148 million people over 65, more than 13% of European GDP will need to be spent on pensions. Healthcare expenses look set to increase just as dramatically due to the rising needs of an ageing population, leading to a total increase in public spending exceeding 8 percentage points of GDP according to the European Commission. In a continent already ravaged by persistent budget deficits and among the world’s highest public debt levels, such costs seem extremely threatening.

Demographics are often sidelined in public discourse; debates tend to focus on short-term issues with more immediate electoral payoff. Yet many of history’s most extraordinary economic developments can be attributed in large part to demographic factors, from France’s long decline during the 19th and 20th centuries to China’s meteoric growth over the past 30 years. Aside from the obvious influence of population growth and size, some of the most crippling or bolstering economic effects come about through the dependency ratio. In all national budgets, the revenue gained from working individuals is used both to support those too old to continue working and educate those too young to start. When too few workers support too many of these “dependents”, one or another of these expenses must be reduced in order to avoid debt or increased taxation. Most countries prefer to cut spending on pensions, as education is an investment that adds value to future workers and thus increases future revenue. But pensions cannot feasibly be reduced beyond a certain point and many European countries seem unable or unwilling to cut spending to either area and even more reluctant to cut down on healthcare costs pushed up by older citizens.

The continent thus faces a seemingly irreversible slide towards crippling budgetary burden. No European country has a TFR (Total Fertility Rate) above the level of 2.1 children per woman required for each generation to equal the size of the last, and such has been the case for the last 40 years. Granted, the situation differs between countries. Britain’s TFR remains at a reasonable 1.9, whereas those of Germany, Spain and Italy remain stubbornly at or under 1.4, a rate at which each generation will be considerably smaller than the last. These differences could even reshape the European economic landscape: while mighty Germany looks set to struggle after 40 years with a TFR below 1.4, much-maligned France leads the continent in birth rates and should only need to account for a comparatively small increase of its dependency ratio from 54 to 69 dependents per 100 workers.

But despite these differences, the overall picture is one of a declining Europe compared to much more positive evolution elsewhere. The continent is projected to see its population decline by more than a hundred million, from 742 to 628 million people, and its dependency ratio should reach 78 dependents per 100 workers. The United States, Canada and Australia on the other hand are not expected to see their ratios exceed 64 dependents per 100 workers, of which half would be children under 15 compared to less than a third in Europe. These countries should also see their populations increase significantly, with America’s population set to skyrocket from 320 million today to 439 million in 2050 and Canada and Australia both expected to nearly double.

Low European fertility has already been noted and debated to some extent in the countries concerned, but measures taken to increase the birth rate have proven ineffectual. This could easily be explained by their largely unambitious nature. Politicians see little incentive in spending time and effort combating such a long-term problem, particularly seeing as low birth-rates can lead to benefits in the short-term. Low TFR at first allowed Europe to take advantage of a “demographic dividend”. Less children meant less spending on education, whereas pension and healthcare spending on the elderly were much less than the revenues created by their working-age children, more numerous thanks to the high birth-rates of the 50s and 60s.

Low fertility’s first effect was thus to relieve these countries from budgetary pressure. Indeed, in China such a situation has been deliberately created through the one-child policy in order to take advantage of the same demographic dividend and allow the country to develop more rapidly. Meanwhile, India’s stubbornly high TFR continues to condemn it to equally high spending on education. But with the retirement of the baby-boomer generation this period has reached an end in Europe. Worse still, even if birth rates were to suddenly recover it could leave the continent in an even more disadvantageous position, with a smaller working population having to pay for more education in addition to increased pension and healthcare expenses.

In any case, the prospect of restored fertility appears unlikely. The tentative efforts that have been made to increase TFR have largely failed. Increases in childcare spending, maternity leave and significant bonuses for new parents have struggled to create change in countries like Germany and Italy. In Germany, an increase to €265 billion worth of spending a year on family subsidies has barely created a bump in the country’s birth-rate. Similarly, a minute increase in fertility in Laviano, a town in Italy having introduced a €10 000 baby bonus under Mayor Rocco Falivena, was found to result only from parents having already-planned children sooner in order to take advantage of a scheme they feared temporary. Government spending thus seems powerless to modify fertility rates deeply-entrenched by culture and the structure of labour markets and not only determined by financial constraints.

A long-standing conservative argument claims that birth-rates should be higher in more traditional families where mothers stay at home to look after children. However, since the 1990s, the opposite phenomenon has been observed in the developed world, with those countries where women participate more in the workforce also being those where fertility is highest. One explanation may lie in the greater male contribution to housework in these countries; women are less likely to want to have children in countries where they will be expected to look after them without help. Another explanation is the fact that these countries make it simpler to balance children and career. Whereas France and Scandinavian countries privilege childcare benefits that allow parents to continue working, Germany, where women who hand children over to day-care too soon are often denounced as “Rabenmütter” or “raven mothers”, has preferred longer maternity-leave schemes such as the Betreuungsgeld, which opponents say encourage mothers to quit the workforce

But even if generous childcare schemes in France and Scandinavia seem to have succeeded in improving low birth-rates, their implementation across Europe appears unlikely. The creation of such generous systems takes time. In France in particular, the family benefits system was only implemented after 150 years of demographic struggle and a proportional decline of the population from twice to half that of Germany’s. While the system enjoys a wide consensus in the country today, such appears unlikely in other European nations justifiably resistant to increased government spending when sovereign debt levels are breaking records across the continent. Those opposing a costly expansion of family benefits may point to the equally high fertility rate of the United States, ascribed not to public spending but to the simplicity of dropping in and out of the workforce for parents due to a flexible labour market. Such a solution appears just as unfeasible however, Europe’s labour market is one of the most regulated in the world and Europeans have shown a strong resistance to erosion of workers’ rights.

With such enormous falls in working population on the cards, many point hopefully to immigration as a solution for the continent’s woes. Immigration has indeed alleviated many effects of ageing, it provides workers that increase revenues without any need for spending on education and thus contributes enormously to welfare systems. But the social challenges of immigration appear increasingly obvious and the evolution of the European political landscape appears to indicate that the old world is incapable of accepting immigrants in the same way as the new. France’s FN, or National Front party, which rose to prominence entirely on its anti-immigration platform, recently came first in 2014’s European elections, whereas the parallel rise of anti-immigration or immigration sceptical parties such as UKIP in the UK, Lega Nord in Italy, Alternatif für Deutschland in Germany and Geert Wilders’ Parti voor de Vrijheid in the Netherlands seem to indicate a similar hardening of sentiment in these countries.

While the new world in America, Canada, Australia and New Zealand seems able to use immigration to effectively fight their much less severe population ageing challenges, the European Union seems condemned to unsustainably rising welfare costs and population decline. In the year 2050, the continent that made up roughly 50% of world GDP in 1900 may make up less than 15% of it, and appear old, debt-ridden and despondent, unable to keep up with a rapidly-changing world.

Sefton Flannery

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