Declining Birthrates Key to Europe's decline

Falling Births, Falling Fortunes

by Joel Kotkin

The labor demonstrators, now an almost-daily occurrence in Madrid and other economically-devastated southern European cities, lambast austerity and budget cuts as the primary  cause for their current national crisis. But longer-term, the biggest threat to the European Union has less to do with government policy than what is–or is not–happening in the bedroom.

In particular, southern Europe’s economic disaster is both reflected — and is largely caused by — a demographic decline that, if not soon reversed, all but guarantees the continent’s continued slide. For decades, the wealthier countries of the northern countries — notably Germany — have offset very low fertility rates and declining domestic demand by attracting migrants from other countries, notably from eastern and southern Europe, and building highly productive export oriented economies.

In contrast, the so-called Club Med Countries– Greece, Italy, Portugal and Spain–have not developed strong economies to compensate for their fading demographics outside pockets of relative prosperity such as Milan. Spain was once one of Europe’s star performers, buoyed largely by real estate speculation and growing integration with the rest of the EU.  Six years ago the country was building upwards of 50% as many houses as the US while having 85% less population. Roughly six million immigrants came to work in the boom, even as roughly seven to eight percent of Spaniards preferred to remain unemployed.

When the real estate bubble broke, there was only limited productive industry to step into the breach. In Spain, private sector credit has dropped for a remarkable eighteen straight months while industrial production has fallen precipitously–7.5 percent in March alone. Spain’sunemployment rate has scaled over 23%, more than twice the EU average. Unemployment among those under 25 in both Spain and Greece now reaches over fifty percent.

After decades of expansion, even fashionable Madrid is littered with store vacancies and  ubiquitous graffiti; many young people can be seen on the street in the middle of the week, either doing nothing or trying to pick up an odd Euro or two performing for tourists.

‘A Change In Values’

Economists tend to explain this decline in terms of budget deficits and failed competitiveness, but some Spaniards believe the main cause lies elsewhere. Alejandro MacarrónLarumbe, a Madrid-based management consultant and author of the 2011 book, Elsuicidiodemográfico de España, says today’s decline is “almost all about a change in values.”

A generation ago Spain was just coming out of its Francoist era,  a strongly Catholic country with among the highest birth rates in Europe, with the average woman producing almost four children in 1960 and nearly three as late as 1975-1976. There was, he notes, “no divorce, no contraception allowed.” By the 1980s many things changed much for the better better, as young Spaniards became educated, economic opportunities opened for women expanded and political liberty became entrenched.

Yet modernization exacted its social cost. The institution of the family, once dominant in Spain, lost its primacy. “Priorities for most young and middle-aged women (and men) are career, building wealth, buying a house, having fun, travelling, not incurring in the burden of many children,” observes Macarron. Many, like their northern European counterparts, dismissed marriage altogether; although the population is higher than it was in 1975, the number of marriages has declined from 270,000 to 170,000 annually.

Falling Births, Falling Fortunes

Now Spain, like much of the EU, faces the demographic consequences. The results have been transformative. In a half century Spain’s fertility rate has fallen more than 50% to 1.4 children per female, one of the lowest not only in Europe, but also the world and well below the 2.1 rate necessary simply to replace the current population. More recently the rate has dropped further at least 5 percent.

Essentially, Spain and other Mediterranean countries bought into northern Europe’s liberal values, and low birthrates, but did so without the economic wherewithal to pay for it. You can afford a Nordic welfare state, albeit increasingly precariously, if your companies and labor force are highly skilled or productive. But Spain, Italy, Greece and Portugal lack that kind of productive industry; much of the growth stemmed from real estate and tourism. Infrastructure development was underwritten by the EU, and the country has become increasingly dependent on foreign investors.

Unlike Sweden or Germany, Spain cannot count now on immigrants to stem their demographic decline and generate new economic energy. Although 450,000 people, largely from Muslim countries, still arrive annually, over 580,000 Spaniards are heading elsewhere — many of them to northern Europe and some to traditional places of immigration such as Latin America. Germany,which needs 200,000 immigrants a year to keep its factories humming, has emerged as a preferred destination.

Declining Population

As a result Spain could prove among the first of the major EU countries to see an actual drop in population. The National Institute for Statistics (INE) predicts the country will lose one million residents in the coming decade, a trend that will worsen as the baby boom generation begins to die off. The population of 47 million will drop an additional two million by 2021. By 2060, according to Macarron, Spain will be home to barely 35 million people.

This decline in population and mounting out-migration of young people means Spain will experience ever-higher proportions of retired people relative to those working. This “dependency rate”, according to INE, will grow by 57 % by 2021; there will be six people either retired or in school for every person working.

If Spain, and other Mediterranean countries, cannot pay their bills now, these trends suggest that in the future they will become increasingly unable or even unwilling to do so.  As Macarron notes, an aging electorate is likely to make it increasingly difficult for Spanish politicians to tamper with pensions, cut taxes and otherwise drive private sector growth. Voters over 60 are already thirty percent of the electorate up from 22 percent in 1977; in 2050, they will constitute close to a majority.

Without a major shift in policies that favor families in housing or tax policies, and an unexpected resurgence of interest in marriage and children, Spain and the rest of Mediterranean face prospects of a immediate decline every bit as profound as that experienced in the 17th and 18th Century when these great nations lost their status as global powers and instead devolved into quaint locales for vacationers, romantic poets and history buffs.

Long before that happens, today’s Mediterranean folly could drive the rest of Europe, and maybe even the world, into yet another catastrophic recession.