The essence of the aging crisis is intergenerational inequality. People aged over 60 own more than 75% of property and financial assets in Europe. This population group, which makes up a quarter (and in about a decade, already a third) of all Europeans, will be the largest bloc of voters in national elections for the foreseeable future. In addition, rising life expectancy is inhibiting the inheritance of wealth. As a result, people under 35 own only 5% of assets in Europe.
Pensioners will, of course, resist reforms designed to redistribute some of their wealth. But they do so at the expense of the less privileged younger generations, who have a hard time climbing the property ladder and will not start receiving pensions until they are 70 or even 80.
The authorities in Europe’s democracies are reluctant to tackle the continent’s demographic crisis, but corporate leaders could look for a solution. The private sector cannot ignore the grim arithmetic: in the European Union, the ratio of tax-paying workers to pensioners receiving pensions has fallen from what was considered the post-World War II norm of four to one to three to one, and will soon fall below two to one. This shift will require changes in occupations, skills, wages, but most importantly, taxes. As employers, corporate leaders will be key players in this process. They should think carefully about their priorities and potential pitfalls.
While we do not yet know how artificial intelligence (AI) will affect the labor market and the economy, it is clear that employers will have to balance a shrinking workforce and skills shortages on the one hand with the need to increase tax contributions on the other. The authorities’ ability to impose new rules and conditions is limited, so the private sector will play a key role in building consensus on new policies. But business groups and industry associations have also avoided the topic, probably fearing to draw politicians’ attention to the size of corporate taxation.
How much more tax can be collected, and from whom, remains to be seen: policy volatility overturns predictive models. But it is possible to predict the spending needs of EU countries. Almost 20 years ago, the International Monetary Fund estimated that by 2050, health care spending in Europe would double, reaching an average of 15% of GDP. And the OECD predicts that by the same date, spending on social security and public pensions will reach 12% of GDP.
By mid-century, due to the aging of the population, EU spending on health care and pensions will start to exceed 25% of all government spending. And if we take into account the growth of defense budgets, industrial policy, the need to restructure the education system and expand residential construction, a tougher tax regime will be inevitable.
Europe’s fiscal space is already limited, and demographic decline threatens to exacerbate the debt crisis to the point of financial collapse. But the EU is myopic in treating these socio-economic problems as national ones. As a result, the bloc has made little progress in forging a “common” policy on this issue, even though it poses a serious threat to its integrity and possibly its survival.
For example, the populations of new EU members in Central and Eastern Europe, including the Baltic states, are declining rapidly due to aging, low birth rates and economic emigration to wealthier European states. The sharp decline expected in some of these countries will either end the EU’s much-valued “cohesion” or require a significant increase in financial transfers.
Some politicians argue that Europe will simply have to learn to age elegantly, but they overlook the scale of the demographic upheaval. The EU labor force will shrink by almost a quarter by 2070, and this trend will only accelerate. Today there are 80 million people under 30 in the EU and the UK (the core of future growth), and by 2080 there will be at best 50 million.
There are no known cases of an economy thriving with a shrinking labor force. Optimists hope that AI will cause a productivity boom, although so far the digital revolution has failed to deliver it. On the contrary, it is increasing inequality between knowledge workers and less-skilled labor. It is reported that 90 million of the 220 million workers in the EU need retraining.
And these grim statistics are nothing new. Leading international institutions, including the European Commission, have published detailed reports highlighting the demographic decline since the turn of the century, but to no avail. There is little public debate on how to respond to the consequences of population ageing.
The silence of European politicians can be explained not only by fear of raising taxes, but also by fears of a large-scale, carefully planned reversal of immigration policy. Sooner or later, voters will have to choose between a dynamic, multiracial Europe and an “Old Continent” that is culturally loyal to its roots but is quietly dying of old age.
Giles Merritt,
founder of the Friends of Europe think tank, author of the book.
“Time Bomb: When the Population Ageing Explosion Will Happen” (Policy Press, 2025).
© Project Syndicate, 2025.
www.project-syndicate.org
