Europe, US face different demographic challenges

EUROPE – The demographic challenges facing Europe were contrasted with those facing the US by international commentator Fareed Zakaria in London today.

Never before in world history has a single power dominated the world, as the US does currently, he said addressing a London conference organised by Morgan Stanley. “The US economy is now as large as the next three largest economies put together, that of Germany, Japan and the UK. The US economy is more flexible and dynamic than others.”

Zakaria, who is a commentator on international affairs and editor of Newsweek International, pointed out that one of the key predictors of long-term economic growth is demography. “In 50 years time, Europe will have 50 million people less than the US and that reality is at the heart of the shift in the balance of power.”

He outlined a scenario where the US would have a young, and dynamic economy with a large population in the working age group. “You need young people to run the economy.”

“Europe would be old, somewhat sclerotic and finding it more difficult to sustain its large pension programmes.” Pensions currently absorb some 28% of gross domestic product in Germany, he claimed. “This will probably go up to 50% in 25 years, unless something happens.”

Europe, he agreed, was changing and much of what Europe has was very good. He cited the example that German and French labour productivity is higher than the US. “But what is important is the trend. Germany would have to increase its population growth 100% in order to maintain a stable demographic mix. Alternatively, it would have to import half a million workers every year.”

There were huge economic and political challenges ahead. “The fact that we are seeing small changes in countries such as France may not be enough. Europe is a rich continent with very productive workers, but what happens going forward?”

He also commented that Europe’s pension systems relied on the younger generation being prepared to sustain them in the future, but he did not see how it was in their interests to continue to do so, when there could not be any future benefit for them from these systems.

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