* Growth, productivity to suffer as population ages
* Demographics to put Europe's social contract under strain
* Emigration adds to challenge for likes of Latvia, Portugal
By Alan Wheatley, Global Economics Correspondent
RIGA/LISBON, April 24 Long after the debt crisis
is over, Europe will be grappling with an even more serious
problem - how to pay for growing numbers of old people.
The population of some countries is stagnant or already
shrinking, notably Germany's. That will reduce savings and
potential economic growth.
The workers who remain are getting older and so are less
productive. That will hold back living standards.
And the ranks of retirees are swelling. That will
threatening the financing of pensions and health care.
In the 27 countries of the European Union, each pensioner is
today supported on average by four people of working age. By
2050, this old-age support ratio will have fallen to just 2:1,
according to United Nations and EU projections.
Latvia, which has applied to join the euro in 2014, is but
an extreme example of these trends. By 2060 there will be four
Latvians of working age for every three aged 65.
Because of emigration and low fertility, the Baltic state's
population shrank by 14 percent, or 340,000 people, between 2000
and 2011, prompting warnings of an existential threat to the
"I don't want to make apocalyptic statements. I hope that
the country can manage. But the alarm bell has rung," said
Mihail Hazans, an economics professor at the University of
Latvia and the county's leading demographer.
Many European countries are raising the retirement age. And
some, including Britain, have favourable population profiles.
But Martins Kazaks, chief economist with Swedbank in Riga,
said governments had yet to grasp the magnitude of the policy
"If you define the tipping point as the point of no return,
then in some respects we have passed it - and not only us, but
most of Europe," Kazaks said.
"With an ageing population and the burden of pensions and
welfare, the growth rate is going to be lower. If you don't do
anything today, the future is going to be a lot more difficult,"
Policymakers need look no farther than low-growth Japan to
grasp the economic impact of population decline and ageing.
"Europe is the new Japan," said Douglas Roberts, an
economist with Standard Life in Edinburgh.
Apart from putting pension systems on a more sustainable
footing, investing in education and training so that workers are
more productive should be a policy priority, economists say. So
should expanding child care to allow more women to join or stay
in the work force.
How to share out the cost of ageing spells potential
political trouble, pitting cosseted pensioners against younger
generations who are overtaxed and overworked.
George Magnus, a senior economic adviser to Swiss bank UBS
in London, said it was understandable because of the euro zone
crisis that the current focus was on the near-term affordability
"But behind that is a very structural issue, which is really
about the social model and the rights and obligations of
citizens vis-a-vis the state. We are going to have to have that
debate," said Magnus, author of "The Age of Aging".
Edward Hugh, an economist in Barcelona, agreed that the
sovereign debt crisis gripping the developed world was at root
about how to meet implicit liabilities for ever older
populations: expectations of future levels of health care and
pension provision may prove too optimistic.
As such, Hugh is critical of policymakers in Europe and at
the International Monetary Fund for neglecting the impact of
"In the absence of policies that acknowledge these issues
exist and that then address them, none of the sustainability
analyses - debt, financial sector, whatever - are worth the
paper they have been written on," he said.
PORTUGAL'S POPULATION PAINS
Recession-hit Portugal also illustrates the vicious economic
and fiscal circle that Hugh identifies in countries on the
periphery of the euro zone as a result of demographics.
Portugal's fertility rate, which stood at 1.32 last year,
has been below the 2.1 replacement rate - the number of children
each woman needs to have to maintain current population levels -
since the early 1980s.
In 2012, only 90,000 children were born, the lowest number
in more than a century, as economic fears gave couples pause.
In short, ageing is pre-programmed. By 2050, Portugal is
projected to have more people aged 60 or over than any other EU
member - 40 percent of the population against 24 percent today.
What's more, some 100,000 to 120,000 Portuguese, or 1
percent of the population, are emigrating every year to look for
better-paid work, depleting the tax base and adding to the
strain of financing the welfare state.
"One of the biggest problems we have is holding on to
employees," said Joao Carlos Costa, general manager of Arpial, a
metal-working firm in Lisbon.
Jose Cesario, secretary of state for Portuguese communities
abroad, puts a brave face on the drain of brain and brawn.
Emigrants acquire valuable skills and remitted some 2.7
billion euros in 2012. Influential members of the Portuguese
diaspora of around 5 million can also act as 'ambassadors' for
the country, Cesario said in an interview.
But he acknowledged that both Switzerland and Luxembourg had
urged him to slow the flow of emigration.
"It's the fish that bites its own tail," Cesario said, using
a Portuguese proverb. "We can get emigrants to come back only if
we have economic development, but we cannot do that without
them." If he had the solution, Portugal would not be in the
situation it is, he added.
The same goes for Latvia.
"It's a big challenge for Latvia, both for the economy and
for our society." Prime Minister Valdis Dombrovskis told
Reuters. "What we need to concentrate on now is economic growth
and job creation so that people see perspectives here in Latvia
and so don't have to leave."
The government also hopes to lure back 100,000 emigrants, or
a third of those who have left since the turn of the century, by
Given that Latvia is one of the poorest countries in the EU,
that will not be easy. "We're not expecting people to pack their
bags and be here on Monday," said Dace Acule, a public policy
researcher in Riga who has worked on a proposed package of
One emigrant unlikely to be tempted back is Datsa Gaile, who
has been in Britain since 2006. She left Latvia because, as a
single mother, she was unable to bring up her two sons on a wage
of about 150 lats ($275) a month.
After a rocky start, she learned English, got a string of
ever-better jobs and now runs Anglo Baltic News
(www.anglobalticnews.co.uk), a website aimed at the estimated
100,000 Latvians in Britain.
"The main problem at the moment is that there are not enough
jobs in Latvia. It's a bit risky if you decide to go back," said
Gaile, who lives in Northampton, a town in central England that
is home to 8,000 Latvians.
"Also, I have been away for almost eight years and my
lifestyle has changed. People are different here. They have more
opportunities in this country," she added.
Professor Hazans of the University of Latvia said at most 20
percent of recent emigrants might return. What's more, his
surveys show that the proportion of 'firm stayers', who have no
thought of leaving Latvia, has fallen to a quarter from a third
As in Portugal, a vicious economic circle becomes hard to
"Emigration sends a negative signal to foreign investors. It
also sends a negative signal for domestic business startups,"
Hazans said. "You think about how many potential customers you
The psychological harm of sustained emigration, which has
accounted for two-thirds of Latvia's population decline since
2000, is as striking as the economic damage. Women's fertility
rate has dropped to 1.1, one of the lowest in the world.
Acule, the policy researcher, spoke of the "demographic
sadness" of a country where most people have a relative working
Hazans added: "The sense of bitterness is still very much
there. Why? A feeling that if everyone is leaving the boat, the
boat must be sinking. Or if the boat is afloat and others are
leaving, why am I staying?"
The imperative, then, is for Latvia to sustain its recovery
from a deep recession in 2008/09, when output slumped by 20
percent as the government opted for austerity rather than
devalue its way out of the financial crisis.
Whether it be in Latvia or Portugal - or eastern European
countries such as Bulgaria and Romania - only more and
better-paid jobs will stop the haemorrhaging of people and
perhaps improve longer-term demographic prospects.
"If you get the chance to live and work normally in our
country, it's a luxury. It's a luxury to be able to stay," said
Dace Beinare, an adviser with SOS Children's Villages, a
non-governmental organisation in Riga.