Demographic Change, Reforms, and the Commission

Olli Rehn recently reiterated his sustainable growth for Europe story. I have shown that Greece has lost more than "just" a decade and talked about how the the secondary effects are now coming back to haunt us, among other things. Let's today address something else. Almost two months ago Mr. Rehn said at the European Forum in Alpbach:

This is not just to combat the current crisis! In the coming decade, a major drag on growth will be the decline in the working-age population in Europr[sic]. Reforms are important not only to overcome the current crisis but also to address the long-term demographic change.

 (emphasis added)
It's fascinating how this person can easily switch from very short term - look at this one not completely awful quarter: it proves that we are doing everything right, never mind the disaster we have caused since 2010 - to long term demographics. I strongly believe that anything Mr: Rehn says has to be taken with a lethal dose of salt. Here's why that is also very true for the demographic situation.

Many people over 25 are leaving Spain, primarily to find work eleswhere. In fact in the second quarter of 2013 the population over 25 shrank by 130,000 compared to one year earlier, according to the Banco de Espana (pdf). The same is true for 2012 (-64,000). In 2010, before the EC (and the rest of the troika) geniuses came up with their epic plan to fix not only the economy, but also address long term demographic change, the population over 25 increased by 181,000. This trend can be observed in in all program countries. Frances Coppola has an excellent round-up of this phenomenon.

In the US worker mobility is something very normal, with little negative consequences and many upsides. If on can't find a job at home and moves to a different state, then the total amount of federal taxes paid will go up and not fall. The welfare programs are for the most part federal programs, so it does not matter that there are many pensioners living in Florida. In Europe the situation is of course very different. Every program is a local one, form unemployment insurance over health care to pensions, so when a Spaniard leaves the country because there are not enough employment opportunities and moves to Germany then that person will pay German taxes and German social security contributions.

So, in the EU we aren't seeing the same upsides from worker mobility as in the US. In the short term Spain will profit from having to pay less unemployment insurance money, but overall less people will pay for the pensions of the elderly in the long run. Causing the population to shrink is the opposite of addressing the long-term demographic change.

Germany has changed its tactics. Beggar thy neighbor to solve domestic economic issues is dead. Long live beggar thy neighbor to solve demographic problems. Merkel (German) herself stated on the issue of labor mobility within the EU(my translation):

We have to be open for young people who come to us, since we already know today that we will have six million less workers by 2025.

 Spain is very much becoming a Giana Sisteresque (video) nightmare version of Florida, with a predominantly elderly but very poor population. What we need to make the euro zone work is a federal budget to reduce the local impact of asymmetric shocks by creating a federal safety net. Also, officials who at least have some understanding of the developments, yeah that would be great, too. Currently, this union does one job and one job only. It strengthens Germany at the expense of all other countries. That needs to change.