Economic crisis could cause generational conflict
By Honor Mahony
The current economic crisis could sharply worsen the problems associated with Europe's ageing population and cause friction between younger and older generations if long term structural changes are not undertaken, the European Commission has warned.
In its 2009 Ageing Report, published Wednesday (29 April), the commission said that the economic downturn "could make the challenges creating by ageing more acute."
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The report says that EU policy makers have a 10 year window – roughly the length of time left before the baby-boom generation starts to retire – to implement reforms to the health, pension and education systems. After the next decade, labour forces are predicted to no longer keep increasing.
No action will mean that the demographic changes ahead will change societies "considerably" and affect "intergenerational solidarity" and create "new demands on future generations."
The EU's current population of about 500 million people is expected to be roughly the same in 2060 but significantly older. "From 2015 deaths will outnumber births and the over 65 are set to increase to 30% of the population in 2060 from 17% in 2008. The 80+ would nearly treble to 12% of the total."
In 50 years time, the EU is expected to move from having now four working-age people (15-64yrs) for every person over 65 to a ratio of only two to one in 2060.
This will massively affect the pension systems as a decrease in the number of workers paying into the system means pension contributions have to rise or the state has to cough up.
"The fiscal impact of ageing is projected to be substantial in almost all member states," says the report. It predicts that spending on pensions, healthcare and longterm care will increase by 4.75 percentage points of GDP by 2060 in the EU as a whole and by 5 percentage points in the eurozone.
The report divides member states into three groups. Those where age-related public spending is highest at 7 percentage points of GDP including the Netherlands, Spain and Ireland. Countries such as the UK, Germany and Belgium belong to the next swathe where spending is predicted at 4-7 percentage points.
A final ten countries (including France, Sweden, Italy and Poland) will see the least increase in age-related spending at 4 percent points or less. The differences are due to variations in birthrates as well as health and pension systems.
The commission predicts that "annual GDP growth rate" will "decline significantly in the future with a smaller working age population acting as a "drag on growth and on per capita income."
To boost productivity, it recommends member states to do more to keep older people in the workplace longer, increase the share of employed women and take steps to lower the rates of early school-leavers.
This has spin-off implications for such things as child care, with improved facilities allowing more women to return to work or encouraging more couples to have children in the first place.
The commission's response represents the first longterm look at the impact of the crisis, with most of the focus to date on the short term impact on employment rates, GDP and budget deficits.
The study's release coincides with the first European Day of Solidarity. A poll on the issue showed that only 14 percent of EU citizens consider old people to be a burden to society.
However, 52% of Europeans fear that people in employment will be increasingly reluctant to pay taxes and social contributions to support older people, with the Portuguese and the Maltese being the most pessimistic in this respect and the Swedish and the Danes the most optimistic.
AGE, the European Older People's Platform, agrees that Europe's demography is "beginning to create tensions" between the generations, but that seeing the problem purely through a financial lens was not enough.
"The way in which our society is organised must be reviewed completely in order to rebuild the social fabric and the links between and within the different generations," it said in a statement.