ECONOMY

Demographics’ bleak future

The big economic and social issues of concern to the country always remain on the agenda. This is fortunate because, in order to solve them, we need time well beyond a government’s four-year term and, above all, we need a dialogue in order to arrive at solutions based on the greatest consensus possible. This is true of social security reform, whose rules of engagement were discussed on Tuesday between Economy and Finance Minister Giorgos Alogoskoufis and the Economic and Social Council (OKE). Just a couple of months ago, the government, opposition and the General Confederation of Greek Labor (GSEE), the umbrella organization for all employees in the private sector and public utilities, considered the social security issue a settled matter. Dialogue on the issue has reopened; indeed, it was GSEE that first spoke of the need for renewed dialogue. No one labors under the illusion that lasting social security reform will take place tomorrow, in a month, or even a year’s time. We must take time to slowly digest solutions now considered impractical for economic, social and political reasons. The annual report of the Bank of Greece, presented on Monday by Governor Nicholas Garganas, provides plenty of supporting material, showing that the social security issue is part of a greater problem faced by our country, and several others, that has to do with the aging population. Indeed, it has been forecast over and over again that Greece – along with most economically advanced countries – will face unprecedented demographic changes with profound economic and social effects in the coming decades. According to some demographic projections, Greece’s working-age population (15-64 years old) will start declining after 2010. Life expectancy has increased, reflecting better living conditions and health standards. At the same time, fertility (the number of children per couple) is less than 1.3, when 2.1 is the minimum population replacement level. Thus, the number of people aged 65 and over will increase by 38 percent in 2030 and 86 percent in 2050 from current levels. Conversely, the number of people aged 15-64 will decline 4.5 percent by 2030, and 18 percent by 2050. This data is nightmarish, because it paints the picture of a country without a future. Greece’s population will reach a peak of 11,427,000 in 2035, with half its population over 65, and will start declining thereafter. As the Bank of Greece report says, «These demographic changes will have a significant effect on the pension system and, generally, on the standard of living.» Unfortunately, very few in Greece have realized the extent of this threat, because, as the central bank’s report points out, this is not just about pensions but about the country’s future. Who will work after 2050? Who will create goods to sustain the children and the aged? Spending on pensions will increase from 12.4 percent of GDP in 2005 to 22.6 percent in 2050. Total aging-related spending – including medical expenses – will increase from 21.1 percent of GDP in 2005 to 32.6 percent in 2050. Can an economy that spends a third of its income on pensions and health-related expenditures survive? Obviously not, since there will not be enough income for consumption or investment. That is, both the economy and society will have no future. This is not some kind of scaremongering. It is what will inevitably happen if present demographic trends continue. The dialogue on social security reform has been inexcusably postponed. Now that it has started, it must be totally frank and each of us must face our responsibilities.