Old and Aging Europe

When US Secretary of Defence Donald Rumsfeld spoke recently of "Old Europe," he was right, but not in the way he intended. Europe is indeed old, and growing older. Across the continent children are increasingly scarce. Fertility rates (the number of children per woman in the population) have fallen to 1.2% in Germany and Italy. The rate is even lower in Spain --in fact, the lowest in Europe. Spain is still a young society, but a society without children is doomed.

The fertility rate for the US, by contrast, is 2.4, and it is 2.1 for the UK. These differences are extraordinary, particularly in view of the far less generous maternity leave policies that apply in the US and the UK relative to continental Europe. France stands out on the Continent with a fertility rate of 1.8, which is most likely the result of years of generous tax policies towards large families.

Migration is also an important explanation for these differences. Higher fertility rates in the US, the UK, and France reflect the large number of immigrant families in each country. Fertility rates among immigrants are typically higher than in native European or North American families. But increasing the number of immigrant workers will not necessarily raise fertility rates. Germany, for example, has a large population of guest workers, but few settle there with their families; most leave their children in their homeland.

An aging population contributes to Europe's poor economic performance. The old do not work, and a smaller and smaller share of the population (the disappearing young) is taxed to support them. In turn, the high tax rates needed to support the old discourage the young from working, creating a vicious cycle: ever increasing tax rates on a disappearing labor force, lower growth rates, and fewer resources available to support those that retire at 60 and live into their 90's.