One of the major challenges that Europe will face in the years to come is the aging of its population. The situation not only puts their pension systems or the replacement of professionals in the labor market on the ropes, but also adds additional pressure on public debt, which, in turn, could lead to higher levels of spending. public sector and lower economic growth. . Population aging will cost the EU dearly equivalent to 2% of its GDP.
This is demonstrated by the estimates of think tank Brueghel. His analysis of the impact of aging on community debt casts a negative light on the budgetary outlook: “for the average of EU countries, the increase in the cost of aging would require an additional adjustment of 2% of GDP between 2024 and 2052, in budget items not linked to aging.
“The bad news is that in countries where the costs of aging are increasing, which comprise almost three-quarters of EU members, a fiscal adjustment to the non-aging budget is expected to be necessary. will continue after the initial adjustment period of four to seven years,” The report highlights, regarding fiscal plans, that countries must design to reduce their debt and deficit to levels below 60% and 3% of GDP, respectively. Remember that this budgetary plan is a roadmap for countries before Brussels and the prelude to the entry into force of the new budgetary rules, which will be fully applied from 2025.
Italy, France, Sweden, Finland, Lithuania, Bulgaria and Croatia are the only EU countries spared from increased spending linked to population aging.
“Unless these costs can be controlled, a reallocation of spending will be necessary: from non-aging to aging-related items, or further tax increases. This situation gives rise to a complex adjustment program in many developing countries”, the document underlines.
The report foresees different levels of adjustment depending on the starting budgetary situation and forecasts of the cost of aging of each Member State. Thus, Romania and Slovakia will have to increase their primary structural balance by more than 5% between 2024 and 2031. Spain is part of the group that must apply a 3% adjustment, along with Poland, Belgium and Hungary.
Experts, who predict an increase in the costs of aging from 2024-2031, emphasize the need to reduce budget items not linked to aging. between 4% and 5% in the case of Spain, a group that also includes France and Italy. And up to 7% in the case of Romania or Slovakia.
The report predicts that several Member States will experience an increase in the costs of aging and will continue this trend beyond 2031. These increases will need to be offset by adjustments to budget items not linked to aging to stay above structural primary balances global requirements required by the EU.
Although the risks linked to demographic aging could add a percentage point of GDP or more to the primary balance of the Twenty-Seven, policies that mitigate the demographic pressures, such as increasing immigration, increasing fertility levels, increasing productivity or reducing the cost of long-term care for the elderly, could reduce the tax burden by half a point .
Demographic change affects the sustainability of public debt in several areas. The most obvious, according to Bruegel experts, is that it will have an impact on the number of people of working age. “A decrease in the active population implies a decrease in GDP and, consequently, an increase in the debt ratio”, concludes the analysis.
In addition, population aging also increases public spending on older people, with rising costs of pensions, health care and long-term care. Finally, demographics can influence interest rates. An aging population could encourage working-age people to save more for your retirement, by reducing the interest rate. At the same time, aging could reduce investment, putting downward pressure on interest rates.
