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Old Europe Just Can’t Keep it Up

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Default profile picture roberto foa

When it comes to fertility, there is only one conclusion: while the Americans are keeping it up, Europe is on the decline.

Is bigger better? In many areas of life, probably not. But when it comes to geopolitics, the consensus has always been a firm - yes. Of course, the relative influence of a state is going to depend on a lot of other things. Per capita wealth, of course, is the most obvious thing: military power and alliances are another. There are always going to be states like Israel, that punch above their weight, and India, that (for the time being) fall flat. But in the long run, size matters. And for that reason, Europe’s future as a potential superpower looks highly uncertain.

Divide and Rule

In 1950, Western Europe was exactly twice as populous as the United States, with a population of 304m as against 152m. So though Europeans were only half as rich per capita as their Atlantic counterparts, they could at least content themselves that they were equal in weight, economically speaking. Over the decades, this situation has roughly continued: America has gotten bigger, Europe has gotten richer, and the total GDP on both sides of the Atlantic has remained fairly balanced.

However, if present population trends continue, in 50 years the situation will have tipped over completely. Europe's population in 2050 would be 360m and falling, whilst America's would be over 550m and rising. Let us try and imagine what this situation would entail.

America, with an average income at least a third superior to that of the European Union, and almost double the population, would have almost treble Europe’s GDP and dwarf her economically. Europe, even if united, would be of no more importance to the US than Japan – a medium-heavy economic bloc with only marginal militarily impact. With America still young and virile, Europe will have become aged and impotent, burdened with a vast and unsupportable elderly population. Bill Frey, a demographer at the University of Michigan, estimates that the median age in America in 2050 will be 36.2, whilst in Europe it will be 52.7. So not only will it be smaller: Europe will also be burdened with an unsustainable pensions bill and fewer workers to pay for it.

Indeed, this may well presage a broader geopolitical realignment. In the 20th century the world’s economic fulcrum sat in the Atlantic Ocean, between New York, London and Paris. In the 21st century, it is likely to be the Pacific Rim, from Shanghai to Tokyo to LA. While the new tiger economies, plus Japan, California, Australia, and of course China surge ahead, Europe will be left as a distant and fading peninsula on the other side of the globe, a place of museums, churches and castles. With Rumsfeld’s remarks on ‘old Europe’ and Bush’s recent tour of the Pacific basin, it is clear that the present US administration also takes this view.

It is, of course, only a projection. Yet present population and economic trends will almost certainly make it reality. After decades of decline, American fertility rates bounced to 2.1 in the 1990s, while Europe’s have ploughed new lows – now below 1.4, below the replacement rate. Factor in America’s massive immigration influxes, with between 11-20 million new incomers in the last decade (as against ‘fortress Europe’ with its closed borders) and the US’s booming economic growth – and the above prognoses follow logically.

Pensioned Off Too Early?

The primary casualty of this demographic shift will be Europe’s egalitarian pension system. Though Europe can in principle sustain its existing ‘pay-as-you-go’ system – by raising taxes, for example - in the context of the European single market and globalisation more generally, the long-run economic costs will be high. In Germany, for example, where pensions now take 20% of incomes, German companies have simply ceased to invest domestically. In the last decade alone, 20-30% of German direct investment has shifted to central-Eastern Europe, and in the late 90s capital outflows to the US more than doubled. The result is unemployment in Germany and stagnant growth. These problems will undoubtedly get much worse if trade liberalisation continues and the elderly populations of Western Europe continue to grow.

It is for this reason that we must refrain from Schadenfreude when we look at the scale of the US budget deficit. It is occasionally suggested that America with its vast deficits is heading for a future of unsustainable debts whilst Europe, with its fiscal prudence (as ensured by the Growth and Stability Pact) will emerge in credit. In the medium term of say, 5-10 years, that may be true. But in the long term the cost of funding Europe’s pensions systems will inevitably act as a strong ‘pull-factor’ bringing European nations back into debt. So it is estimated that by 2050 government debt could be equivalent to 150% of national income in the EU as a whole, and over 250% in Germany and France. The US, meanwhile, would get by with a debt of less than 100% of GDP. So while the burden is growing on both sides of the Atlantic, it is going to be much heavier in Europe.

Le Declin de l’Europe Continue?

It may not be much encouragement, but the one thing about long-range forecasting is that decades later it often turns out to have been wrong. It is possible for example that Europe’s low fertility rates reflect a sociological blip, the effect of a generation of women delaying childbirth until their 30s, in which case European fertility rates could well begin to rise again in the next decade. And Europe could adopt a more pragmatic approach to immigration: US population growth since the end of the cold war has been fuelled principally from Mexican incomers, and there is no reason why Europe could not become a sink for nearby Russians, Turks, and Arabs.

But one reason why long-range forecasting gets foiled is because people take action – after interpreting the world, they sought to change it. We already know enough about what kind of future Europe faces in 50 years time: the real question then is whether Europe’s elites are sufficiently responsive and whether Europe’s peoples are ready to embrace change. With Germany’s Agenda 2010 and struggling reform programmes in France and Italy, there are some signs that the former are taking action. But with a continual low-level growth, and relative historical prosperity, Europe has yet to reach crisis-point – and it is only in crisis that public opinion can be moulded around a new consensus. It seems old Europe may have to get a lot older before she finally undergoes a rebirth.

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