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Sat September 24, 2011
As Europe Ages, Its Economies Look Vulnerable
"Old Europe" is getting old, and fast.
The share of seniors in the population of Western European countries is growing rapidly, due to a combination of increased longevity and low fertility rates.
That fact is having two major effects on many economies within the European Union. Over the short term, many nations are struggling to pay for generous health coverage and pensions.
Several European countries have cut pension costs over the past couple of years by raising the retirement age. On Wednesday, Greece announced a straight cut in the value of monthly pension payments.
Over the long term, the economic challenges posed by an aging population will be even greater. With fewer residents of working age — between 20 and 64 — many European economies will struggle to grow.
"We may be looking at a future of very slow and even zero growth in GDP across the business cycle," says Richard Jackson, who directs the Global Aging Initiative at the Center for Strategic and International Studies.
U.S. In Better Shape
The share of the senior population is rising in the United States, too. But demographers don't consider the problem so dire as in Europe — not to mention Japan, which is now the world's oldest nation.
The United States has a relatively high fertility rate of 2.1, which refers to the average number of babies per women of childbearing age. The country has also been more welcoming to younger immigrants than many European nations.
"We have an aging population, but at the end of the day, when the last of the baby boomers have passed on to that great Woodstock in the sky, we'll be about as old as Japan and Italy are today," Jackson says. "And we'll have a growing population, and not a stagnant or a declining one."
By 2025, population growth is expected to stall in every developed country except the U.S., which is also expected to be the only developed country with more children under 20 than adults over 65.
Europe Aging Fast
Western European countries such as Germany, Italy and Spain, by contrast, are aging fast. In Germany and Italy, for example, the share of the population that is 65 or over is expected to rise from one-fifth today to more than one-third by 2050.
That may sound like a long way off, but Europe's fiscal crisis brought forward what had seemed like long-term pension problems. These nations have lost the fiscal room they might have had to accommodate growth in old-age benefit costs.
Improvements in life expectancy coincided with a period in which countries had been lowering retirement ages, meaning all the extra years of life went into retirement rather than productivity, says Nicholas Eberstadt, a demographer at the American Enterprise Institute.
"There's a huge problem when entitlements meet population aging, in Europe as a whole, and in places like Greece and Portugal in particular," Eberstadt says.
Immigrants Need Not Apply
Europe could lose as many as 60 million workers over the next decade, according to Dan Hamilton, a scholar on Europe at the Johns Hopkins School of Advanced International Studies. Barring major changes, he says, "aging populations alone could reduce European Union output growth by nearly half by 2040."
It's not clear what will turn the aging tide. As Hamilton notes, Europe tends to attract lower-skilled immigrant workers than the U.S., Canada and Australia.
Some countries have integrated immigrant populations fairly smoothly, but others have struggled. Of late, European politics have taken on a decidedly anti-immigrant tinge.
The leaders of Germany, France and the United Kingdom have all complained about the "failure" of multiculturalism in recent months, while far-right parties from France to Hungary have gained strength by promoting strongly nationalistic politics.
"In most countries, politicians are competing to see who can be harder on immigrants," says Eric Kaufmann, who teaches politics at the University of London.
Some demographers attribute the comparatively high fertility rates in France and northern European countries in part to social service programs that offer generous assistance to new mothers. But they don't expect that success to be easily replicated elsewhere.
Pro-fertility policies have generally failed to encourage many women to have more children, Kaufmann says.
"To make people have children they don't want to have, that's beyond the power of any despot," says Phillip Longman, a demographer at the New America Foundation.
Instead, says Eberstadt, the number of women choosing never to have children is growing, particularly in German-speaking countries. There, the total is approaching 30 percent.
Facing Old Age Alone
The result will be fewer working-age adults, which will translate not only into challenges for economic growth, but lead to more seniors who have limited family support and are dependent on pension and health-care systems already under terrific strain.
Germany may now be the economic engine that's pulling Europe along and providing its best chance for getting out of debt.
But, Eberstadt says: "A generation or two from now, there are going to be an awful lot of older people in Germany who are going to be childless or alone or both. The problem of support for those people is going to be more acute."