Last month we discussed Germany’s forecast demographic slump in the coming decades. I noted that if this demographic decline turns into economic decline, then Europe and the rest of the World will be in for a bumpy ride in the 21^st century. Well, according to the World Economy Institute in Hamburg (HWWI), this demographic decline will seriously threaten the long-term viability of Europe’s leading economy. The Telegraph quotes the Institute as stating that:

“No other industrial country is deteriorating at this speed despite the strong influx of young migrant workers. Germany cannot continue to be a dynamic business hub in the long-run without a strong jobs market[.]” Interestingly, in the five years 2008-2013, Germany managed 8.2 births per 1,000 people, a figure lower even than Japan’s of 8.4 births per 1,000 people. Such continuously low birth rate means that the German workforce will start falling at a steeper rate than Japan by the early 2020s.  The IMF is warning that this decline to be more concentrated and harder to handle than the gentler pace of decline seen in Japan so far.

“The HWWI said the numbers in the crucial 20-65 age group will drop from 61pc to 54pc by 2030, pushing the dependency ratio towards 1:1 and calling into question the solvency of the public pension system. Life expectancy for women is expected to continue rising to 88 and for men to 84 by the middle of the century, creating a massive social burden.” By way of contrast, Britain and France are in a much better demographic position with an average of about 12.5 births per 1,000 people in the years 2008-2013. The IMF expects both to overtake Germany in terms of total GDP by 2050 and perhaps as early as 2040: this would be a radical change in the European balance of power.
Apparently Germany’s leaders are aware of the shifting demographic sands under their currently impressive economic position. They are trying to run budget surpluses so that they can avoid “a Japanese-style debt-trap”.  However, whether austerity is the best action for Germany to take is debatable: the IMF thinks that Germany would do better for itself and for Europe if it spent more to prepare for its old age.  Budget cuts over the last 10 years or so have led to a negative rate of public investment, even though “parts of the German canal system, railways and national infrastructure are slowly falling apart”.
One way that Germany could slow its demographic decline is to allow in more immigrants.  This is what the HWWI recommends although it does recognise that such a policy is politically dangerous. The Telegraph notes that:

"The anti-euro Alternative fur Deutschland party (AFD) has broken into several regional parliaments with a hard-line stance against immigrants. There are already almost 10m foreign-born nationals in the country - 12pc of the total – with a further 400,000 migrants are expected this year."  In short, the German electorate’s tolerance for large scale immigration may have sated. If this is true, then we might have to get used to a world in which Germany is no longer the powerhouse of Europe. If so, this would remove one of the dynamic forces which has pushed European politics for the last 150 years or so.