Posted on July 13, 2011

Southern Europe: Beyond a Demographic Point of No Return

David Goldman, Seeking Alpha, July 7, 2011

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That is true for the moment, when the elder dependent ratio for Southern Europe stands at around 25%. Between 2020 and 2045, however, the infertility of Southern Europe will catch up with it, and the elder dependent ratio will rise to over 60%–an impossible, unmanageable number. At that point the character of these countries will change radically; they will be overwhelmed with immigrants from North Africa as well as sub-Saharan Africa, who will not have the skills or the habits of civil society to maintain economic life. And their economies will slide into a degree of ruin comparable only to that of classical antiquity. Perhaps the Chinese will operate Greece as a theme park. Spain, which can draw on Latin American immigrants, is likely to be the least badly off.

Strictly speaking, Ireland should not be included among the PIIGS (Portugal, Italy, Ireland, Greece, Spain). Although post-Catholic Ireland has lost its famous fecundity, Ireland’s fertility rate still hovers around replacement. {snip} The southern Europeans are doomed. They have passed a demographic point of no return. There simply aren’t enough females entering their child-bearing years in those countries to reverse the rapid aging.

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Why would anyone buy a 30-year bond from any of these countries? By 2041, there won’t be enough taxpayers left to pay the coupons. {snip} The real demographic crunch will start to hit in the mid-2020s, and it is possible that markets will ignore the inevitable demographic doom until then.

There’s little reason to expect European contagion to blow up the financial system today. But there’s also no reason to invest in those countries, except on a very opportunistic basis.