Cause and Effect in European Politics and Law

Once Again about Austerity. This Time – because We Will Live Longer

Zhaneta Kuyumdzhieva, May 30, 2012

The ECOFIN meeting on 15 May 2012 adopted the report of the European Commission and of the Ageing Working Group (AWG) at the Economic Policy Committee (EPC). To the purpose of this study Eurostat has presented a set of demographic projections on the population trends in Europe in the period 2010 – 2060. During the discussion of the report’s conclusions ECOFIN called on for implementation of the Europe 2020 strategy and of the three-step strategy for managing the economic and budgetary effects of ageing population. To reduce the damage of the projected demographic trends those policies provide in particular for reduction of public debts, employment and productivity increase, pension reform and reform in the health-care and social security systems.

So far, so good. Only, in a situation of a protracted and heavy recession, the state debt is rising and the unemployment numbers are increasing, while the public expenditure cutting remains the “bull’s eye” whose hitting requires high social price. The projections of the Commission and the EPC warn that the social system will be put under additional pressure, namely by the ageing of the population and its low general growth rate.

The demographic trends and the economic challenges

By 2060 many EU countries will spend about 1.5 percentage points of GDP more on pensions. And while some member states have already successfully started to implement reforms in their pension systems, some other countries indicate little progress in the same direction. This will lead to an increase of health-care expenditure of up to 2.7 percentage points of GDP for the period 2010 – 2060. In some cases this expenditure will rise up to 3.4 percentage points. Such perspectives require the governments – who anyway work in a regime of constant budgetary cuts – to find a solution so as the pensions and the health-care systems could be able to meet the needs brought by the demographic trends.

One possible step would be to revise the effective pension age so as to prevent the early leaving of the labour market by people who are still able to work. This measure is even more urgent with a view to the 14% reduction of the 15–64 age group projected by 2060 in all EU member states except Belgium, Ireland, France, Cyprus, Luxembourg, Sweden and UK. The number of the 65-year olds and older will almost double – from 87.5 millions in 2010 to 153.6 millions in 2060. Their rate (12%) in the European population will almost equal that of the youngest people (15%). The number of the old age people (over 80 years) will almost triple, the projections pointing at a number of 62.4 millions by 2060.

The measures taken to increase the pension age would progressively increase the number of the people employed at age of 55–64 years. If in 2010 they have been 46.3%, by 2060 they will be a little more than 60%. The increase represents 16.4 percentage points for the EU member states, while the same rate in the euro area is projected to be 1.7 percentage points higher. The step however, will not compensate for the shortage of labour force projected to occur following an employment peak in 2026 (228.3 millions people). In the period 2020–2060 the experts forecast a decrease in the employment numbers with about 18.2 millions.

The three factors that “colour” the picture of the population are birth rate, life expectancy rate and migration rate. According to the current projections fertility rate will rise with 0.12 percentage points from 1.59% in 2010 to 1.71% in 2060. The average life expectancy at birth for the men will rise up to 84.6 years from 76.7 years in 2010. Life expectancy at birth is projected to increase by 6.5 years for women so that in 2060 they are expected to live up to 89.1 years. The reasons for migration – the third factor – are mostly related to the search for better life standards, higher remuneration and security. The cumulated net migration to the EU over the entire projection period is 55 millions, of which the bulk is in the euro area (42 millions).

Destination countries such as Italy, Spain and UK, which in 2010 have attracted the biggest number of immigrants, will be confirmed in coming decades as focus countries for immigration inflow. On the other hand, the countries that are currently experiencing a net outflow such as Bulgaria, Lithuania, Latvia etc. are projected to taper off or reverse in the coming decades.

Those assumptions signify that the age structure of the EU population will dramatically change. The total population number will, however, rise only by 5% by 2040 – i.e. it will increase up to 526 millions and then will decline. The increase or decline trends vary across the countries. As a whole, it is projected that almost half of the countries will increase their population number. Ireland, UK, Belgium, Luxembourg, Cyprus and Sweden will register the highest population growth. Therefore, if two years ago Germany was the country with the biggest population in the EU (82 millions) in 2060 it will give way to UK whose population at that time will be 79 millions.

Bulgaria’s place in the statistics

Bulgaria’s appearance in most statistics registers sad results. The processes studied in the current report have always been painful topics for our country, which in the last years experienced heavy drain of human resource. With a view to the other two factors in the population picture, Bulgaria stands at the top of the group of member states whose population will significantly shrink. In 2060 the Bulgarians will number 27% less than in 2010 and the fertility rate will increase by only 0.1 percentage points in the period 2010 – 2060.

Ageing population and the reforms aimed at increasing retirement age will lead to an increase of the employment rate of people between 55–64 years with 10.5 percentage points throughout the period. The employment rate of the working age population (15–64 years) will rise only with 4.4 percentage points by 2060. It is obvious that on the way of the big goal – the long-term growth – stands not only the current recession. The ageing effect and the low fertility rate are another challenge for the European union.

We will have to have working places for more people – for those who will enter the labour market and for those who should not leave it to prevent the creation of additional budgetary burdens. And although the relation between fertility and ageing the latter prevails, the current situation cannot but lead to higher unemployment among the young people – a problem that became central for Europe during the last informal EU summit on 23 May. Due to the importance of the demographic challenges in the coming decades and the difficult economic years that lie ahead for the EU ECOFIN called on the Commission to include the monitoring of the demographic factor in the European semester so that all its effects could be considered in the co-ordination of the economic policies in the EU.