Demography in the European Union: a debt trap to come?

European Union - Sep 06 2018

Weekly food for thought

Evolution of demography and public health expenditure in the EU

Following the recent decisions of ECB to stop quantitative easing, the movement to future normalization of its monetary policy at a medium-term, the progressive return of Greece on the market and last elections results in Italy, some questions arise again about the European Union’s perspectives and robustness. Another topic to add to the reflection could be how European countries could manage their aging populations and increasing public health expenditure.

In the face of this, and if demography and health expenditures follow the same trends in the future, EU countries have only three choices:


  • Let public deficits increase, along with the debt-to-GDP ratio. This would cause higher long-term interest rates if the ECB continues on its normalizing path;
  • Increase fiscal revenue in order to prevent higher deficit due to increasing public spending;
  • Use monetary policy to maintain low interest rates and let the public deficit and debt-to-GDP ratio increase.

Each solution has potential negative effects. No matter the path European Union’s countries will choose, there is still a lot of turmoil waiting for the ship that is European construction…

Thomas Lorans, Analyst  –  Sources: Beyond Ratings, World Bank

 

 

 

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