Europe's age crisis begins to bite

Europe's age crisis begins to bite

The EU's working age population will peak next year before tipping into decline for half a century

By Ambrose Evans-Pritchard
Last Updated: 9:25PM BST 29 Apr 2009

This will cause a relentless rise in pension and health costs that risk asphyxiating the region's economy.

A new report by the European Commission said this financial crisis could turn into a "permanent shock to growth" from which Europe never fully recovers unless it moves fast to bring its public debts under control.

The main danger is a "Lost Decade" akin to Japan's deflation slump, with economies contracting by 0.9pc into the middle of the next decade, but there is also a risk of a deeper downward spiral.

Every country in the EU has a fertility rate below 2.1 births per woman, the minimum to keep the population stable. The average is 1.51, chiefly caused by women waiting late into their 20s or 30s before having children. This stretches out the generations.

While the fertility rate is expected to rise over time, demographic shifts tend to be glacial. An ageing crunch is already baked into the pie, hitting hardest from 2015 to 2035.

Britain fares relatively well, helped by immigrants and – some say – by its unwed teenage mothers, who lift the fertility rate at 1.8. The British working age cohort will be the biggest of any EU country by mid-century at 45m, followed closely by France.

If demographics is destiny, Britain and France may reclaim their mid-19th century status as the two dominant powers of Europe, but by then the Old World will be a much reduced force.

Germany's working population will shrink by 29pc to just 39m. Poland, Bulgaria, Romania and the Baltic states will all see drops of over 40pc.

No country will be spared the vaulting costs of ageing, an extra tax of 5pc on GDP, leaving aside the less visible tax on cultural dynamism that comes with lost youth.

The EU "dependency ratio" will soar: there will be two workers to support each person over 65, compared to four today. It will be worse if Europe fails to attract enough immigrants, all too likely given the catch-up under way in the developing world.

Faced with this future, Britain and Europe need to slash debt and salt away investment wealth in the rising East. Instead, public debt is exploding. Brussels has laid it bare: we will need hair-shirt discipline once we emerge from this recession. It may be our last chance.

http://www.telegraph.co.uk/finance/economics/5245757/Europes-age-crisis-begins-to-bite.html

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