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A grim report on future grabs Europe's attention (Graham Bowley, International Herald Tribune, November 12th, 2004)

When Wim Kok, the former Dutch prime minister, unveiled a scathing report here last week warning that Europe was steering its economic future dangerously off course, most prime ministers and presidents listening in the hall where he spoke seemed to want to turn a deaf ear.

Suddenly, though, the report has become the talk of European halls of power, and it may yet become a wake-up call for policy makers to spur growth.

"This is really strong stuff," a European ambassador said, adding that the report struck at the heart of his own country's problems. "This is important," he said.

The chief point of the report, which is beginning to resonate in Brussels, is that while Europe's stumbling economies may be doing poorly now, they are likely to fare far worse in the future, mainly due to the Continent's deteriorating demographics. The "pure impact of aging populations will be to reduce the potential growth rate of the EU from the present rate of 2 percent to 2.25 percent to around 1.25 percent by 2040," the report warned. "Already from 2015, potential economic growth will fall to around 1.5 percent," it cautioned.

As a yardstick of where Europe stands in a globalizing world, especially versus the United States, the analysis shows that Europe has much to worry about. [...]

Kok's politically charged conclusion is that soon Europe may not be able to afford its generous social model. The growth gap is getting wider, the report said. A chief reason is that Europe's population is on average older than America's and the age gap is widening.

That Europe's birth rates are declining is not news: the average number of children a European woman can expect to bear in a lifetime was 1.9 in the mid-1980s - now it is around 1.4, and is projected to decline for at least another 5 to 10 years.

But Europe also has a rising life expectancy, and its immigration rates are nowhere near those in the United States.

This equation means that Europe has, on the one hand, a declining proportion of people of working age actually doing work and generating wealth. On the other hand, the Continent is supporting a burgeoning population of pensioners who are demanding to be paid expensive state-funded benefits and health care. [...]

And then there is what a number of analysts say is the final alternative for solving Europe's age problem: immigration.

America has been far more open than Europe to immigrants, who tend to be younger than the native population and produce more children. In the past decade, the United States took in more than 10 million legal foreigners. Europe had an immigration boom in the late 1980s and early 1990s, but the numbers have fallen since then.

Europe could try to take in more immigrants to close this gap but the events over the past two weeks in the Netherlands, Kok's own country, suggest that there may be a limit to Europe's ability to absorb outsiders.

The stabbing to death in Amsterdam of Theo van Gogh, a critic of Islam, the subsequent bombing and arson attacks on Muslim buildings and an armed stand-off in what was for decades one of Europe's most open countries suggest there may be a political limit to the European liberal society, and in that case to immigration and to Europe's economic growth too.

At this time, we are unable to confirm rumours that next year's Nobel prize for Economics will be awarded to Brothersjudd.