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Immigration 'Can Help Europe Support Its Ageing Population' 

By David Gow, The Guardian

European Union

October 25, 2005



The European Union needs root-and-branch reform of its public finances, including changes to its tax base, pensions and healthcare systems, to cope with a rapidly ageing population, Joaquin Almunia, the economic and monetary affairs commissioner, said yesterday. 

Mr Almunia, a Spanish socialist, called for more active labour market policies, substantial but controlled immigration and reforms to wage bargaining to foster the greater economic growth and improved productivity essential to overcoming Europe's demographic challenge. 

His comments, in an interview with the Guardian, come as the EU prepares for talks at Hampton Court on Thursday to debate how Europe can respond to globalisation and its impact on the continent's social model. 

Mr Almunia said that, under current policies, ageing will increase public spending on pensions, healthcare and long-term care by between 4% and 8% of GDP in most of the EU's 25 states by 2050 - when the stability and growth pact lays down a ceiling of 3% for budget deficits. 

Economic growth will be severely affected by a fall in the working-age population from 2010, with the labour force estimated to slump by 48 million or 16% by 2050. In the same period the population aged 65 or more will rise by 58 million or 77%, leaving two instead of four workers for every pensioner. 
Mr Almunia said that even if the EU raises its employment rate to 70% from the current 63.3% there would still be 9 million fewer employed by 2050, requiring more active policies to promote the employment of women and older people. 

Economic growth in the EU's original 15 members, estimated to be 2.3% a year up to 2010, will fall, he says, to 1.8% during 2011-30 and to 1.3% between 2031 and 2050 if labour productivity continues to grow at 1.7%. In the 10 new members growth will plunge from 4.3% to 0.9% over the same period. 

Pointing out that future growth would depend more on improved productivity, he said labour market policies needed to be reformed to promote mobility via extensive retraining and lifelong learning. 

"We also need to discuss how to connect the wage bargaining system more closely to the evolution of productivity," he said. "Europe cannot compete through lower wages but we need to establish a better relationship between wages and productivity." 

Mr Almunia made a plea for legal migration to expand the European labour force but, pointing to the racial tension in Birmingham over the weekend, said this had to take account of "the absorption capacity" of societies. 

"It's a question of whether societies and institutions are able to absorb and integrate these people. You have to combine labour market requirements with social and political constraints and, in my native Spain, we have taken in millions of migrants in the last six or seven years but we don't feel that the absorption capacity has been fulfilled." 

He insisted that measures to tackle labour shortages and combat structural unemployment had to be combined with sustainable public finances. Next month EU finance ministers are due to discuss his recommendations for dealing with excessive budget deficits in at least a dozen countries, including Britain, France and Germany, the three biggest economies. 

He singled out France as the main concern. "On my estimates the public deficit will be around 3% in France this year, largely because of one-off measures, but in future it will increase." 

He added: "The problems lie ahead. French public finances will require structural reforms and they need to improve the tax base and enhance it, not by raising taxes on labour but by defining a clear strategy to get public spending under control." He expressed deep scepticism that, on current policies, France could tackle the new liabilities of an ageing population, producing sustainable public finances and cutting taxes. "You need very high levels of growth to do that but structural problems are limiting growth."


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