Macroscope | Europe’s not producing enough babies and that’s a big problem
Europe’s social welfare model is headed for crisis
While investors in Asia will be familiar with Japan’s demographic challenges, the euro zone and indeed Europe as a whole has its own problems in this regard, problems that are accentuated by an already inordinately high outlay on social spending.
Euro zone social protection spending alone amounted to 20.4 per cent of the currency bloc’s gross domestic product (GDP) in 2014, the latest full year available, said Eurostat, the European Union’s own statistics service last month.
Adding on health expenditures raises the total to 27.7 per cent of 2014’s euro zone GDP. Indeed, in total, Eurostat calculates that in that year general government expenditure in the euro area was the equivalent of 49.4 per cent of the bloc’s GDP.
To put that into perspective, the International Monetary Fund (IMF) wrote in January that it expects total government expenditure in Hong Kong in fiscal 2016 to represent 19.4 per cent of that fiscal year’s GDP.
Ongoing economic challenges, that have already seen the European Central Bank lower their benchmark interest rate deep into negative territory, do not make it easy for national governments in Europe to roll back, in any meaningful way, social spending commitments that have built up over many decades.
Fewer young people mean a smaller future work force from which governments can draw tax
Greece is a case in point where pension reform has been a particular bone of contention between politicians in Athens and the providers of Greece’s bail out funds.