2011-01-12

Why euro crisis is far from over

Everyone is focused on the next couple of years in the European sovereign debt crisis, assuming if they can make it through this period, things will get better. This ignores the looming impact of demographic changes in European countries.

From Global Aging and the Crisis of the 2020s
The expectation that global aging will diminish the geopolitical stature of the developed world is thus based in part on simple arithmetic. By the 2020s and 2030s, the working-age population of Japan and many European countries will be contracting by between 0.5 and 1.5 percent per year. Even at full employment, growth in real GDP could stagnate or decline, since the number of workers may be falling faster than productivity is rising. Unless economic performance improves, some countries could face a future of secular economic stagnation—in other words, of zero real GDP growth from peak to peak of the business cycle.
Emphasis mine. If the Europeans manage to prevent a major debt restructuring (default by another name), they will have exchanged a severe financial crisis for a fiscal crisis that will last a generation.

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