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Thursday, May 20, 2010

The eurozone's next problem?

If all the recent events weren't enough, a story in today's Guardian poses another question mark against the long-term economic prospects of the eurozone. Germany, the EU's economic powerhouse and 'paymaster of the eurozone', is shrinking and faster than people thought before:

Last year 651,000 babies were born in Germany, 30,000 less than the previous year. With only 8.2 children being born for every 1,000 citizens (compared with 9.3 in 2000), and with 10 in 1,000 citizens dying every year, Germany is nowhere near approaching a replacement rate that would keep the population table.

Eurostat's current population projections already see Germany falling from 82m to 76m by 2045. The UK and France are set to grow from 62m and 63m to 73m and 71m respectively.

But looking at the 'dependency ratio' (projected number of persons aged 65 and over expressed as a percentage of the projected number of persons aged between 15 and 64) is even more worrying. We accept it is worrying for the EU as a whole, particularly Eastern Europe.

However, Germany's ratio will increase from 31% today to 55% in 2045, France from 26% to 44%, Italy from 31% to 58%, Spain from 24% to 54%, Portugal from 27% to 50%, Greece from 28% to 53%, Netherlands from 23% to 46%.

No wonder then that Germany is so desperate for the eurozone members to get their budgets in order - there is a huge social security bill heading their way and far less people to pay for it.

And, for those who still harbour a desire for the UK to one day join the eurozone or suggest that the UK risks being marginalised in Europe, compare the stats for the UK: the ratio will rise from 25% now to 37% in 2045. Not great, but far better than elsewhere.

While the UK still faces major challenges, such as paying for its bloated public sector pensions and reducing the alarming deficit, in 2045, the UK should be where the economic action is. This will be hard for others to ignore and should spur the UK to be more confident about setting out an alternative vision for the EU.


Anonymous said...

So, with a pensions timebomb ticking everywhere in the EU, what could be cleverer than clamping down on hedge funds, which so often fund pensions? Brilliant idea.

OldStone50 said...

The above blog entry assumes business as usual (BAU). Is that what we REALLY want? Do we hope to repeat the last several centuries of economic activity without modification of basic principles? Many will say, "Yes, yes, yes! It was good enough for my grandfather, it's good enough for me!"

But the current model presumes unending growth. Perhaps spiritual growth can be unending (although why it should be is not clear), but physical growth cannot be. Nor has physical growth clearly led to either spiritual growth or to happiness growth.

What we humans want is largely a function of upbringing and availability. Most people, though, appreciate minimizing conflict and maximizing freedom. Guaranteed is that more people trying to access the same resources leads to conflict and loss of freedom. Until someone can unequivocally demonstrate to me the utilitarian benefit of increasing conflict, I will find reports of declining local population sizes to be good news, even if, and particularly in the short term, BAU will have to be modified.