Demographic and Fiscal Pressures Threaten Future of European Union

Home/Uncategorized/Demographic and Fiscal Pressures Threaten Future of European Union

Demographic and Fiscal Pressures Threaten Future of European Union

(Denver) While the political problems of the European Union (EU) are well known the demographic and fiscal pressures underlying them are not.

Yet taken together these elements constitute centrifugal forces that seriously threaten the future viability of the EU.

At its birth in 1957 the EU (then called the “Common Market”) comprised just six nations of very similar educational and cultural background joined together for the narrow and specific purpose of economic cooperation. Today the EU is an amorphous aggregation of twenty-seven nations of widely varying institutional histories and economic status that aspires to “ever closer union” as expressed in the 1993 Maastricht Treaty that established the EU.

The long running Greek crisis drew attention to the stark disparities in wealth between the EU’s Northern and Southern member states. Almost unnoticed however has been the much greater economic disparities between Western and Eastern member states.

Seven of the world’s “fastest shrinking” nations are EU members- Bulgaria, Croatia, Hungary, Latvia, Lithuania, Poland, and Romania- where populations are projected to decline by at least 15% by mid-century. Living standards in Bulgaria, and Romania are lower than Turkey. Poles earn only a third as much as Germans. Nearly a third of Romanians live on less than six dollars a day.

Integrating the EU’s poorer South into Northern prosperity is a daunting challenge that could take decades. Simultaneously doing the same for the impoverished East is inconceivable.

These poorly understood demographic realities form the backdrop to the steadily mounting fiscal pressures now bearing in on the EU.

For a half-century Germany’s remarkable wealth and prosperity has been viewed as the rock-like foundation of European economic stability. With its federal budget in surplus, and national debt trending downward, it has become axiomatic that Germany should agree to become a piggy bank for the EU’s weaker economies. Up to a point Germany has acquiesced by backstopping the Greek bail-out and most recently agreeing in principle to Emmanuel Macron’s long standing plea for some kind of euro zone fiscal transfer mechanism. This last concession has not played well with German voters who don’t see why their taxes should go up in order to subsidize the economic mismanagement of their southern neighbors. Adding to the pressures on Berlin is the constant drumbeat of demands from the global economic
community (e.g. the Trump administration, the International Monetary Fund) to “invest” more in public works to reduce Germany’s trade surplus.

Aside from the growing political damage to Angela Merkel and her steadily eroding coalition, the simple (but surprising to many) fact is that Germany just doesn’t have the money to pay for this continued fiscal largesse.

The reason Germany is hitting a wall financially traces directly to the country’s demographic crisis as its’ population is aging faster than any nation save Japan.

A recent study done by the Finance Ministry in Berlin revealed that over 26% of Gross Domestic Product (GDP) is going to age-related payouts- taxpayer funded  pensions, medical care, and related items. This equals 60% of total government spending, and the Ministry declared future projections “patently unsustainable”.

If the EU’s strongest economy is on an unsustainable path, it is self-evident that the other entitlement-based members (e.g. France, Italy) are in similar or worse predicaments.

Growth-killing tax increases are ultimately counterproductive, and benefit reductions are hugely unpopular. Only strong and stable governments would dare to sail upon such treacherous political seas, and strength in governance is sorely lacking in the EU. Any polity that requires the unanimous consent of members for
any major decision is at constant risk of paralysis, and even disintegration.

The Brexit crisis, disastrous migration policies, and the wave of populist revolt are not passing phenomena, but rather symptoms of a deeper malaise, which is the highly flawed constitution of the EU. A quarter of a century ago in the
euphoria of the Soviet Union’s collapse, and the perceived “End of History” with attendant triumph of liberal democracy the politically expedient unanimous consent rule was thought to be somehow doable. Today it is revealed as only the most spectacular defect sitting atop the Byzantine bureaucracy, which grinds away in Brussels while pretending to be a functioning government.

History has returned with a vengeance, and it will not be kind to the architects of Maastricht. _______________________________________________________________________________________________________________________________________________________________William Moloney is the former Education Commissioner of Colorado. His columns have appeared in the Wall St. Journal, USA Today, Washington Post, Denver Post and Human Events.

Leave A Comment