17 January 2013
Global Demographics and Pensions Research
http://www.credit-suisse.com/researchandanalytics
European Demographics & Fiscal
Sustainability
Global Demographics and Pensions Research
Research Analysts
Amlan Roy
+44 20 7888 1501
amlan.roy@credit-suisse.com
Sonali Punhani
+44 20 7883 4297
sonali.punhani@credit-suisse.com
Angela Hsieh
+44 20 7883 9639
angela.hsieh@credit-suisse.com
“Growth is sustainable in the long run if it is based on a variety
of pillars, one of which is fiscal stability.”
Mario Draghi, ECB President (3 May 2012)
 Europe’s fiscal problems have dominated global economic news over recent
years. This report assesses European fiscal sustainability strains in the
face of ageing and changing demographics with detailed analysis for six
countries (France, Germany, Italy, Greece, Portugal and Spain). It builds on
our reports Spotlighting the European Union’s Demographics (2011) and A
Demographic Perspective of Fiscal Sustainability: Not Just the ImmediateTerm Matters (2010).
 The 80+ age group is the fastest growing population group in the EU (5%)
but accounts for a disproportionately higher share of public expenditure. The
old-age dependency ratio (people aged 65+ versus those aged 15-64) is
strongly positively correlated to government indebtedness.
 In 2010, the EU27 spent 76% of total benefits on old age, health care and
disability. EU27’s age-related expenditure on public pensions, health care
and long-term care are projected to rise from 20.3% of GDP (2010) to
24.5% (2060).
 The vast demographic heterogeneity of European countries suggests that
the one-size-fits-all policy approach will not work in the future. In 2011, the
ratio of highest/lowest GDP per capita across the EU27 members was 15.85
times in contrast to 2.23 times across the states within the US – an example
of the EU’s vast heterogeneity.
 We present three indicators (S0, S1 and S2) developed by the European
Commission to measure and assess fiscal sustainability. S0 measures the
risk of immediate fiscal stress, S1 and S2 measure fiscal sustainability over
medium- and long-term horizons. Spain (relative to France, Germany and
Italy) appears to be the fiscally most vulnerable with an S0 level of 0.44 (at risk),
S1 level of 5.3 (high risk) and S2 level of 4.8 (medium risk). We also discuss
alternative approaches to fiscal sustainability by the IMF and the OECD.
 We re-emphasize and discuss four policy prescriptions for the fiscally
challenged ageing European countries – abolish mandatory retirement and
adopt flexible enabled retirement, raise labour productivity, increase
female labour participation rate and adopt selective immigration.
 Holistic policy reform across labour, taxes, pensions, migration, health
and education is essential to mitigate the current fiscal strains that loom
over the growth prospects of Europe. Current and future frameworks for a
reconstituted EU need to acknowledge and incorporate proactively the
demographic and economic differences across member states.
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17 January 2013
“Analyzing prospective government debt developments and risks to fiscal
sustainability is crucial at the current juncture for euro-area countries and
the EU as a whole to be able to formulate appropriate policy responses and
restore credibility and confidence. The deterioration in fiscal positions
and increases in government debt since 2008 together with the
projected demographic transition, with an ageing population,
compound each other and make fiscal sustainability an acute policy
challenge.”
European Commission (December 2012)
The current state of demographics and debt are acutely affecting the ability of European
governments to maintain a strong fiscal position in the future. Fiscal sustainability is the
ability to continue now and in the future current policies without causing debt to rise as a
share of GDP. Our perspective of demographics is based on “people
characteristics”. The two important characteristics of people are that they are
consumers and workers. The ongoing demographic trends of low fertility rates and
increased life expectancy (at birth and older ages too) are expected to increase
significantly age-related government expenditure on the elderly.
Exhibit 1 shows there is a strong correlation between the old-age dependency ratio
(ratio of population aged 65+ per 100 people aged 15-64) and government gross debt
for selected EU countries. The old-age dependency ratio and the share of the old (60+ years
or 80+ years for example) are summary measures of ageing. European countries allocate a
large share of their benefit expenditure on old age, health care and disability. In 2010, the
EU27 spent 76% of total benefits on old age, health care and disability.
Exhibit 1: Old-age dependency ratio and government debt, 2012
180
General government gross debt
(% of GDP)
Greece
160
140
Portugal
120
Ireland
Belgium
UK
Spain France
100
80
Netherlands
Germany
Austria
60
Finland
40
Denmark
Sweden
Luxembourg
20
0
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
Old-age dependency ratio (ratio of population aged 65+ per 100 population 15-64)
Source: UN, IMF, Credit Suisse
In this report, we examine the dynamics of demographics and debt in Europe, highlighting
the projected effects of an ageing population on government budgets. In section 1, we
present EU27-wide demographic and economic data while conducting detailed
demographic and ageing analysis for six selected countries – France, Germany, Italy,
Greece, Portugal and Spain. Section 2 presents the patterns of household consumption,
savings and debt. In section 3 we discuss projected age-related government expenditure
and its impact on fiscal sustainability. Section 4 advocates four policy prescriptions for
ageing European countries, focusing on retirement age, labour productivity, female labour
force participation and immigration. We relate the discussion to the state of policies and
data in the selected countries. Our conclusions are noted in Section 5.
European Demographics & Fiscal Sustainability
2
17 January 2013
1. Core demographic indicators
In Exhibit 2, we present demographic indicators1 such as population, the population growth
rate, the fertility rate, life expectancy, dependency ratios (child and old-age) and the
median age across 27 countries in the EU as well as economic indicators such as GDP
and GDP per capita. As is evident, these EU27 countries display vast heterogeneity in
terms of size of their population and economy. The population and economic size range
from 0.4 million people and 8 billion USD (Malta) to 82.0 million people and 3.4 trillion
USD (Germany) in 2012.
Exhibit 2: Core economic and demographic indicators
Population Population Total fertility
Life
(millions) growth (rate (children per expectancy
per annum)
woman)
at birth
(years)
Child dependency Old dependency Median age GDP (current
GDP per
ratio (pop. aged 0- ratio (pop. aged
(years)
USD billion)
capita
14 per 100 pop. 65+ per 100 pop.
(current USD)
15-64)
15-64)
2012
2010-15
2010-15
2010-15
2012
2012
2010
2012
2012
Austria
8.4
0.2
1.3
81.0
21.2
26.8
41.8
391
46,330
Belgium
10.8
0.3
1.8
80.0
25.9
27.3
41.2
477
43,175
Bulgaria
7.4
-0.7
1.5
73.7
20.7
26.6
41.6
51
6,974
Cyprus
1.1
1.1
1.5
79.9
24.3
17.0
34.2
22
25,629
Czech Republic
10.6
0.3
1.5
77.9
20.4
22.5
39.4
194
18,337
Denmark
5.6
0.3
1.9
79.0
27.3
26.7
40.6
309
55,448
Estonia
1.3
-0.1
1.7
75.0
23.8
26.2
39.7
21
15,987
Finland
5.4
0.3
1.9
80.2
25.3
28.2
42.0
247
45,545
France
63.5
0.5
2.0
81.7
28.6
27.1
39.9
2,580
40,690
Germany
82.0
-0.2
1.5
80.6
20.2
31.5
44.3
3,367
41,168
Greece
11.4
0.2
1.5
80.1
22.2
28.4
41.4
255
22,757
Hungary
9.9
-0.2
1.4
74.7
21.5
24.7
39.8
129
12,934
Ireland
4.6
1.1
2.1
80.8
32.5
18.3
34.7
205
44,781
Italy
61.0
0.2
1.5
82.0
21.7
32.1
43.2
1,980
32,522
Latvia
2.2
-0.4
1.5
73.8
21.0
26.3
40.2
27
13,316
Lithuania
3.3
-0.4
1.5
72.8
21.4
23.5
39.3
41
12,873
Luxembourg
0.5
1.4
1.7
80.2
25.6
20.5
38.9
55
105,720
Malta
0.4
0.3
1.3
80.0
20.5
21.6
39.5
8
19,740
Netherlands
16.7
0.3
1.8
80.9
26.2
24.5
40.7
770
45,942
Poland
38.3
0.0
1.4
76.4
20.7
19.7
38.0
470
12,302
Portugal
10.7
0.0
1.3
79.8
22.3
27.7
41.0
211
19,768
Romania
21.4
-0.2
1.4
74.3
21.8
21.7
38.5
171
8,029
Slovakia
5.5
0.2
1.4
75.8
20.6
17.3
36.9
91
16,726
Slovenia
2.0
0.2
1.5
79.5
20.4
24.6
41.7
45
22,461
Spain
46.8
0.6
1.5
81.8
22.6
25.7
40.1
1,340
28,976
Sweden
9.5
0.6
1.9
81.7
25.9
29.5
40.7
520
54,879
United Kingdom
62.8
0.6
1.9
80.4
26.5
26.1
39.8
2,434
38,591
EU152 average
26.6
0.4
1.7
80.7
24.9
26.7
40.7
1,009
44,420
EU27 average
18.6
0.2
1.6
78.7
23.4
24.9
40.0
608
31,541
Source: UN, IMF, Credit Suisse
1
2
We conduct detailed demographic analysis of consumers and workers in European countries in Credit Suisse Demographics
Research, European Demographics at the Core - Consumers and Workers (February 2010).
Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain,
Sweden and the United Kingdom.
European Demographics & Fiscal Sustainability
3
17 January 2013
Among all the EU27 countries, Bulgaria, Estonia, Germany, Hungary, Latvia, Lithuania
and Romania are currently experiencing negative population growth, i.e., a decreasing
population size. Ireland is the only country with a fertility rate equaling the replacement
level of 2.1 in 2010-15. Life expectancy at birth (2010-15) is projected to range from 72.8
years (Lithuania) to 82.0 years (Italy). Italy also had the highest old-age dependency ratio
of 32.1 whereas Cyprus had the lowest of 17 in 2012. A further split of the EU27’s old-age
population above 60 into 60-69, 70-79 and 80+ age groups is presented in the Appendix
as Exhibit 53. In terms of GDP per capita, Luxembourg was the richest (105,720 current
USD) and Bulgaria had the lowest GDP per capita (6,974 current USD) in 2012. The ratio
of GDP per capita in the richest (Luxembourg) to the poorest country (Bulgaria) in EU27 in
2011 was nearly 16 times whereas for the US the ratio of the richest (Delaware) to the
poorest (Mississippi) state was 2.23 times. This exemplifies the vast heterogeneity across
EU member states.
We next focus on a more detailed examination of the six selected countries – France,
Germany, Italy, Greece, Portugal and Spain3. As shown in Exhibit 3, population growth
rates are projected to fall significantly for all the six countries. The population growth
rate is projected to be negative for all the countries (except France) in 2060-65 and for
Germany, Italy and Portugal in 2030-35. While population growth rates relate to the
number of consumers, labour force growth rates relate to the potential pool of workers. As
in Exhibit 4, labour force growth rates have been falling since 1990 and are projected to
continue to fall in the future, turning negative for Germany and Italy by 2015-20.
Exhibit 3: Population growth rates
Exhibit 4: Labour force growth
Rate per annum
Rate per annum
0.8
0.6
0.4
0.6
0.5
0.2
1990-1995
1.8%
0.5
0.4
2010-2015
2015- 2020
1.4%
0.2
0.2
1.0%
0.0
0.6%
-0.2
-0.2
-0.4
-0.2
-0.2
-0.4
-0.6
-0.8
Germany
1980-1985
Italy
2010-2015
Greece
2030-2035
Source: UN, Credit Suisse
0.5%
0.4%
0.2%
Portugal
-0.2%
-0.3%
-0.6%
-0.8
France
0.3%
0.2%
-0.3
-1.0
0.3%
Spain
-1.0%
France
Germany
Italy
Greece
Portugal
Spain
2060-2065
Source: ILO, Credit Suisse
Exhibit 5 displays fertility rates of these countries, where we note that in 1980-85, total
fertility rates decreased, especially in Greece, Portugal and Spain. Fertility rates are
currently below the replacement fertility rate of 2.1 children per woman. In France,
however, fertility rates have been increasing and are projected to increase closer to the
replacement fertility rate.
Exhibit 6 shows a significant increase in the old-age dependency ratios (the number of
people aged 65+ per 100 people of working age) across all the countries. This trend is
projected to continue in the future. In Portugal and Spain, the old-age dependency ratio is
projected to rise over 2010-60 and reach 64 and 60 respectively. In 2030, Germany is
projected to have the highest old-age dependency ratio of 48 amongst all the six countries.
In fact four of the five countries with the oldest populations in the world, discussed in detail
3
Detailed coverage of the demographic indicators for all the EU15 countries was presented in our previous report: Credit Suisse
Demographics Research, Spotlighting the European Union's Demographics (December 2011).
European Demographics & Fiscal Sustainability
4
17 January 2013
in our previous report 4 , are in Europe: Germany, Italy, Greece and Sweden. We reemphasize the fact that old-age dependency ratios are related to fiscal burdens of
countries resulting from supporting the older non-working or partially working populations.
Exhibit 5: Total fertility rates
Exhibit 6: Old-age dependency ratios
Children per woman
Population aged 65+ per 100 people aged 15-64
70
2.2
2.1
2.0 2.0
2.0
2.0
2.0
2.0
1.9
2.0
1.8
1.9
64
60
50
1.8
60
58
56
52
44
40
1.5
1.6
30
1.5
22
24
21
21
18
20
1.4
18
10
1.2
France
Germany
1980-1985
Italy
2010-2015
Greece
Portugal
2030-2035
Spain
0
France
Germany
2060-2065
Italy
1980
Source: UN, Credit Suisse
2010
Greece
2030
Portugal
Spain
2060
Source: UN, Credit Suisse
As shown in Exhibit 7, life expectancy at birth across our selected countries has also been
rapidly rising and is projected to continue to do so in the future 5 too. Conditional life
expectancy, i.e., life expectancy at age 65 has also risen for the selected European
countries, as shown in Exhibit 8. The increase is particularly notable for German men
whose life expectancy at age 65 rose by 4.2 years between 1990 and 2011 and
Portuguese women whose life expectancy at age 65 rose by 4.7 years between 1990 and
201. Conditional life expectancy, i.e., life expectancy at age 65 is important to pay
attention to for assessing the burden of the ageing population on government budgets.
Exhibit 7: Life expectancy at birth
Exhibit 8: Life expectancy at age 65
Years
Years
90
88
86
84
82
80
78
76
74
72
70
Male
87
87
87
87
85
75
75
74
85
76
75
72
France
Germany
1980-1985
Italy
2010-2015
Greece
2030-2035
Source: UN, Credit Suisse
Portugal
France
Germany
Italy
Greece
Portugal
Spain
Female
1990
2011
1990
2011
16.5 (1998)
18.9 (2010)
21.2 (1998)
23.4 (2010)
14
18.2
19
21.2
15.2
18.3 (2009)
19
22.1 (2009)
15.7
18.5
18
20.6
14
18.1
17.1
21.8
15.5
18.7
19.3
22.9
Spain
2060-2065
Source: Eurostat, Credit Suisse
The changes in the age structure of the population can be illustrated by the population
pyramids in 1980, 2010 and 2030, shown in Exhibit 54 of the Appendix. The age pyramids
rectangularize over time and show pictorially the dramatic increase first in the share of the
middle-aged followed by an increase in the share of the old-aged population group.
4
Credit Suisse Demographics Research, Macro Fiscal Sustainability to Micro Economic Conditions of the Old in the Oldest Five
Countries (August 2011).
5
The implications of increased longevity are discussed in Credit Suisse Demographics Research, How Increasing Longevity
Affects Us All?: Market, Economic & Social Implications (19 March 2012) and Credit Suisse Demographics Research, Longer
Lives, Changing Life Cycles: Exploring Consumer and Worker Implications (July 2011).
European Demographics & Fiscal Sustainability
5
17 January 2013
The extent of ageing can be further demonstrated by the change in the share of
households based on the age of the household head as shown in Exhibit 9. From 1980
to 2011, the share of households headed by older people (aged 60 years+) increased
across the six countries. The increase was most significant in Greece where the share of
households headed by an elderly person had increased by 10% over 1980-2011. On the
other hand, the share of households headed by those aged under 40 decreased. This is
most significant in Spain where the share dropped by 10%. This reflects the fact that
people today study more, start earning later and start families later too than they did in the
past, – see our detailed study, Longer Lives, Changing Life Cycles: Exploring Consumer
and Worker Implications (2011). We argued in that report that this has implications for
sectors and the housing market too.
Exhibit 9: Households by age of household head, 1980 & 2011
As a percentage of total
< 29
30 - 39
40 - 49
50 - 59
60+
100
90
80
30
36
31
37
34
20
22
29
40
42
29
29
37
38
70
60
18
18
50
40
18
19
17
20
18
30
20
10
20
16
17
15
1980
2011
1980
0
France
13
2011
Germany
23
19
5
10
6
2011
1980
2011
Greece
19
18
16
13
Italy
21
20
20
17
4
1980
21
20
21
19
11
22
19
19
23
21
12
14
20
21
18
15
12
6
10
1980
2011
1980
Portugal
4
2011
Spain
Source: Euromonitor, Credit Suisse
2. Household consumption, savings and debt
An examination of the age structure of households is important because the age of the
household head influences the consumption expenditure patterns of a household.
Exhibit 10: Household consumer expenditure by age of household head: Germany, 2011
Age
< 20
20 - 29
30 - 39
40 - 49
50 - 59
60+
48,610
55,084
53,772
48,223
13.9
Consumption Expenditure per Household, USD
Total
25,949
37,716
Breakdown by Type (%)
Food, Beverages and Tobacco
12.8
13.2
14.1
14.7
14.6
Clothing and Footwear
5.7
5.7
5.8
5.6
5.0
4.3
Housing
23.5
23.3
23.3
23.3
23.8
25.6
Household Goods and Services
4.8
5.6
6.1
6.3
6.5
6.1
Health Goods and Medical Services
1.9
2.7
3.4
3.8
4.6
7.4
Transport
19.5
16.9
14.4
14.6
15.1
12.5
Communications
4.5
3.9
3.1
2.8
2.6
2.2
Leisure and Recreation
7.4
8.0
8.8
9.0
8.9
9.4
Education
2.2
1.9
1.6
1.4
0.9
0.4
Hotels and Catering
5.3
5.6
5.9
5.7
5.6
6.0
Miscellaneous Goods and Services
12.4
13.3
13.5
12.9
12.4
12.3
Source: Euromonitor, Credit Suisse
European Demographics & Fiscal Sustainability
6
17 January 2013
Exhibits 10 and 11 show the consumer expenditure by the age of the household head in
Germany and Greece in 2011. Households headed by 40-49 year olds tend to have the
highest consumption expenditure in Germany and Greece. This accords with the Life
Cycle Hypothesis too as the period between 45 and 54 years of age is typically shown to
be the peak earning years of average white-collared professionals.
In Germany, the households whose head is aged 60 and above spent a greater share on
healthcare and medical services in 2011 whereas the households with a younger head
(under 20 years of age) spent a greater proportion on transport. In contrast with Germany,
Greece’s household consumption pattern exhibits significant differences. In Greece,
younger households spent 43.7% on housing whereas households headed by people
aged 60+ spent 21.8% on housing in 2011. Greece’s older households spent a greater
share on food, beverages and tobacco (22.7%) compared to younger households (13.8%)
over the same period.
Exhibit 11: Household consumer expenditure by age of household head: Greece, 2011
Age
< 20
20 - 29
30 - 39
40 - 49
50 - 59
60+
59,194
65,845
63,488
49,760
22.7
Consumption Expenditure per Household, USD
Total
22,386
40,522
Breakdown by Type (%)
Food, Beverages and Tobacco
13.8
16.4
18.9
20.3
21.2
Clothing and Footwear
5.7
4.9
4.9
4.9
4.6
4.2
Housing
43.7
34.7
25.4
21.0
20.2
21.8
Household Goods and Services
2.1
4.0
4.7
4.6
4.4
4.4
Health Goods and Medical Services
2.5
4.9
6.4
6.2
6.5
8.2
Transport
6.3
9.5
11.8
11.6
11.7
11.0
Communications
3.9
3.8
3.5
3.5
3.6
3.5
Leisure and Recreation
4.0
5.6
6.5
6.2
5.7
5.2
Education
1.2
0.9
2.6
4.6
3.4
1.2
Hotels and Catering
12.8
10.3
9.2
9.5
10.0
9.5
Miscellaneous Goods and Services
3.9
5.1
6.1
7.7
8.7
8.2
Source: Euromonitor, Credit Suisse
As shown in Exhibit 12, Germany had the highest GDP per capita (32.31 thousand euros)
and the highest gross disposable income per capita (32.44 thousand euros), the highest
private final consumption per capita (18.63 thousand euros) and the highest private gross
savings per capita (6.84 thousand euros) in 2012. Portugal had the lowest GDP per capita
(15.61 thousand euros), the lowest gross disposable income per capita (15.12 thousand
euros) and the lowest private final consumption per capita (10.24 thousand euros). Greece
had the lowest private gross saving per capita (1.89 thousand euros) in 2012. Our
demographic focus on consumption and savings via gross disposable income is due to the
savings-investment links with capital flows and current account.6
Savings equal aggregate disposable income less consumption expenditure. Part of the
savings are channelled through the capital markets – both domestic and international. The
depth of the capital markets can be analyzed by looking at their bond and stock market
capitalizations as shown in Exhibit 13. Italy had the highest bond market capitalization
(147.4% of GDP) with the bulk of it being public bond market capitalization (93.1%) in
2010. The private bond market capitalization ranged from 23.4% (Greece) to 62.1%
(Spain). The stock market capitalization as a percentage of GDP is the highest in Spain
(86%) and quite low in Italy (15.2%), Greece (20.8%) and Portugal (38.7%).
6
Please see Credit Suisse Demographics Research, Demographics, Capital Flows and Exchange Rates (August 2007) and
Demographics, Japanese Current Account and a Disappearing Savings Rate (October 2009).
European Demographics & Fiscal Sustainability
7
17 January 2013
Exhibit 12: GDP, disposable income, consumption
and saving per capita, 2012
Exhibit 13: Market depth, 2010
Thousands of Euro
% of GDP
GDP per Gross national
Private final Private gross
capita disposable income consumption savings per
per capita
per capita
capita
France
Germany
Italy
Greece
Portugal
Spain
31.04
31.11
17.88
6.11
32.31
32.44
18.63
6.84
25.68
25.22
15.75
4.28
17.25
16.75
12.84
1.89
15.61
15.12
10.24
2.63
22.79
22.01
13.50
5.03
Source: European Commission, UN, Credit Suisse
Private bond market Public bond market Stock market
capitalization
capitalization
capitalization
France
Germany
Italy
Greece
Portugal
Spain
55.8
64.0
74.6
31.6
48.5
40.6
54.3
93.1
15.2
23.4
55.3
20.8
59.6
45.6
38.7
62.1
42.5
86.0
Source: World Bank, Credit Suisse
Private savings affect the sustainability of public finances through the following equation7:
Sp= I + CA + (G - T)
where Sp denotes Private savings, I denotes Investment, G denotes Government
Expenditure; T denotes Taxes and CA denotes current account.
Hence a country's private saving can take one of the following three forms (a) budget
deficit, purchase new government debt, (b) purchase of foreign wealth from foreigners and
(c) investment in domestic capital. The evolution of savings-investment gap relative to the
current account is presented in Exhibit 55 in the Appendix.
In Exhibit 14 , we present the gross national savings in selected countries.
Exhibit 14: Gross national savings
Exhibit 15: Household savings rates
% of GDP
% of disposable income
35
25
30
20
25
15
20
10
15
10
5
5
0
0
-5
France
Germany
Italy
Greece
Source: IMF, Credit Suisse
Portugal
Spain
EU 27
Greece
France
Portugal
Germany
Spain
Italy
Source: Eurostat, AMECO, Credit Suisse
There are wide divergences between these countries and significant changes over time. In
1980, Portugal had the highest level of gross national savings (31.1% of GDP) and in 2012,
it had the second lowest level (13.6%), higher only than Greece (7.1%). Currently
Germany has the highest level of gross national savings (23.4%).
In Exhibit 15, we present the gross savings rates of households, defined as gross savings
divided by gross disposable income, with the latter adjusted for the change in the net
equity of households in pension funds reserves. Gross savings equal gross disposable
7
For more details, refer to Credit Suisse Demographics Research, Demographics, Capital Flows & Exchange Rates (August
2007).
European Demographics & Fiscal Sustainability
8
17 January 2013
income less aggregate consumption expenditures. In 1995, Italy had the highest
household savings rate (21.8%). In 2012, the household savings rate ranged from -4.1%
(Greece) to 16.5% (Germany).
Domestic private savings and foreign capital inflows also affect the fiscal sustainability of a
system. Hot capital flows increase volatility and lead to high risk of contagion and crisis.
Capital flows have been attributed as an underlying fundamental cause of the credit
crisis in Fault Lines (2010) by R. Rajan, the former chief economist of the IMF.
Exhibit 16 displays gross disposable income of households and highlights the difference
between Portugal and Greece (as well as Spain) relative to Germany. The standards of
living are very different not just on a per capita but also on a household basis. Exhibit 17
highlights the differences in the debt/income ratio of households, a proxy for indebtedness
on a household basis. The gross debt/income ratio of households is defined as loans
divided by gross disposable income, with the latter adjusted for the change in the net
equity of households in pension funds reserves. Household indebtedness has increased
over time for the selected countries apart from Germany. In 2011, Portugal had the highest
household gross debt/income ratio (125.5%).
Exhibit 16: Gross disposable income of households
Exhibit 17: Gross debt/income ratio of households
Billions of euro
%
2000
150
1751
125
1439
1500
1000
1366
100
1099
991
75
872
697
450
500
50
25
149126
109 94
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
0
2001
France
Germany
2011
Italy
Greece
Source: Eurostat, Credit Suisse
Portugal
France
Germany
Italy
Greece
Portugal
Spain
Spain
Source: Eurostat, Credit Suisse
Having discussed the projected ageing trends across the selected European countries and
household savings and debt, we next examine the effect of ageing on government budgets
and fiscal sustainability.
3. Age-related government expenditure and fiscal
sustainability
In this section we focus on the impact of ageing on fiscal sustainability, presenting three
quantitative indicators over different horizons that help measure and assess fiscal
sustainability. The fiscal balances of selected European countries have fluctuated a lot
since the 1990s (Exhibit 18). Greece’s general government structural balance was -18.6%
of potential GDP in 2009 and in 2012, Spain’s structural balance was lower than that of
Greece. The IMF projects the general government structural balance to remain negative
for all our selected countries except Italy until 2016. Exhibit 19 shows the dramatic
increase in general gross government debt since 1990.
European Demographics & Fiscal Sustainability
9
17 January 2013
Exhibit 18: General government structural balance
Exhibit 19: General government gross debt
% of potential GDP
% of GDP
Dotted lines represent projections
Dotted lines represent projections
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
200
0
180
160
-5
140
120
100
-10
80
60
-15
40
20
-20
France
Germany
Italy
Greece
Portugal
Spain
Source: IMF, Credit Suisse
France
Greece
Germany
Portugal
Italy
Spain
0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Source: IMF, Credit Suisse
Greece’s general gross government debt increased from 73% of GDP in 1990 to 171% in
2012 and is projected to fall to 164% in 2016 as part of the reforms agreed with the
European Commission and the ECB. The credit-worthiness of each country or sovereign
can be measured by either a credit rating that is assigned by the ratings agencies, or a
market related creditworthiness measure, which is the yield spread on sovereign debt of
ten-year maturity against a benchmark.
Exhibit 20: Ten-year sovereign spread over the German equivalent
Basis points
3500
3000
France
Italy
Greece
2500
Portugal
Spain
2000
1500
1000
500
0
15/01/2008
15/01/2009
15/01/2010
15/01/2011
15/01/2012
15/01/2013
Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse
In Exhibit 20, we present a country’s credit-worthiness by comparing its ten-year sovereign
bond yield against a benchmark, which is the ten-year German government bond yield.
The trajectory of sovereign spreads reflects the relative credit-worthiness and investo’
confidence of the sovereign or the country. The differential spreads tell the story regarding
the distressed periods for Greek and Portuguese debt in the euro zone crisis.
European Demographics & Fiscal Sustainability
10
17 January 2013
We also examine the five-year sovereign CDS spreads of these six countries. The
sovereign CDS of these six countries are referenced to their sovereign bonds. The CDS
spread is the premium paid by the protection buyer to the seller to gain protection from any
sovereign credit event such as defaulting on its sovereign obligation. When a CDS spread
widens, investors perceive a deteriorating credit condition and demand a higher premium.
Markets are therefore pricing in the increased likelihood of a credit event. Due to different
scales and pricing sources used, we present the sovereign CDS spreads of five countries
– France, Germany, Italy, Portugal and Spain in Exhibit 21 and that of Greece in Exhibit 22.
Again, the uncertainty and the worsening of the fiscal conditions in Portugal and Greece
resulted in the spiking up of their CDS spreads in January and March 2012 respectively. It
is also worth mentioning that regulatory changes have led to a loss of liquidity and market
size in several of these default swap markets and instruments.
Exhibit 21: Five-year sovereign CDS spreads
Exhibit 22: Five-year sovereign CDS spreads8
Basis points
Basis points
1800
1600
1400
1200
30000
France
Germany
Italy
Portugal
Spain
25000
20000
1000
15000
Greece
800
10000
600
400
5000
200
0
15/01/2008
15/01/2009
15/01/2010
15/01/2011
15/01/2012
Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse
15/01/2013
0
01/07/2009
01/07/2010
01/07/2011
01/07/2012
Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse
Exhibit 23 shows the forecasts for age-related government expenditure, including public
pensions, health care and long-term care, as a percentage of GDP across the EU27 and
the six selected countries. Age-related expenditure on public pensions, health care and
long-term care are projected to rise from 20.3% of GDP in 2010 to 24.5% in 2060 in the
EU27. Age-related expenditure is projected to increase in most cases except in the case
of Italy where the public pensions spending is forecast to fall by 0.9% over the 2010-60
period. In Germany and Spain, the overall increase across these three components has
been the most significant. The age-related spending is projected to rise over 2010-60 by
5.7% of GDP in Germany and by 5.5% of GDP in Spain.
8
In order to account for the missing data on Greek sovereign CDS spreads from March 2012 to April 2012, Bloomberg draws a
straight line to make the series continuous.
European Demographics & Fiscal Sustainability
11
17 January 2013
Exhibit 23: Forecast age-related government expenditure
% of GDP
Age-Related Expenditure Components
Public Pensions
EU27
France
Germany
Italy
Greece
Portugal
Spain
Health Care
Long-term Care
Total
2010
2060
2010
2060
2010
2060
2010
2060
11.3
12.9
7.1
8.3
1.8
3.4
20.3
24.5
14.6
15.1
8.0
9.4
2.2
4.2
24.7
28.8
10.8
13.4
8.0
9.4
1.4
3.1
20.2
25.9
15.3
14.4
6.6
7.2
1.9
2.8
23.8
24.4
13.6
14.6
6.5
7.4
1.4
2.6
21.4
24.5
12.5
12.7
7.2
8.3
0.3
0.6
20.0
21.6
10.1
13.7
6.5
7.8
0.8
1.5
17.5
23.0
Source: European Commission, Credit Suisse
Exhibit 24 presents a decomposition of public pensions expenditure that highlights five
main drivers of government public pension expenditure:





Dependency ratio
Coverage ratio
Employment rate
Benefit ratio
Labour intensity
Exhibit 24: Decomposition of public pension expenditure
Pension Expenditure
=
GDP
Population 65+
Population 20-64
Dependency Ratio
X
X
Number of pensioners
Population 20-64
X
Population 65+
Working people 20-64
Coverage Ratio
1/Employment Rate
Average Pension*
Working People 20-64
Hours Worked 20-64
X
X
GDP
Hours Worked 20-64
Hours Worked 20-74
Hours Worked 20-74
Benefit Ratio
1/Labour intensity
Residual
*Average Pension= Public pension spending / Number of pensioners
Source: European Commission, Credit Suisse
The dependency ratio (demographic factor, which we referred to as the old-age
dependency ratio) is the most significant contributor to the projected increase in
pension expenditure as shown in Exhibit 25, ranging from 7.9% of GDP in Germany to
10.4% in Greece and Portugal. The dependency ratio is the only factor contributing to the
increase in projected pension expenditure while the other factors offset this increasing trend.
European Demographics & Fiscal Sustainability
12
17 January 2013
Exhibit 25: Decomposition of gross public pension expenditure, 2010-60
% of GDP
2010
level
EU27
France
Germany
Italy
Greece
Portugal
Spain
Dependency Ratio Coverage Ratio Employment effect Benefit ratio Labour intensity
contribution
contribution
contribution
contribution
contribution
Interaction +
residual effect
2060 level
11.3
8.5
-2.9
-0.8
-2.7
0.1
-0.6
12.9
14.6
9.1
-3.5
-1.2
-3.1
0
-0.8
15.1
10.8
7.9
-1.8
-0.5
-2.2
0
-0.9
13.4
15.3
9.5
-5.5
-1.3
-2.9
0
-0.8
14.4
13.6
10.4
-3.4
-1.9
-3.6
0.1
-0.6
14.6
12.5
10.4
-2.5
-1
-5.5
0
-1.1
12.7
10.1
9.7
-0.8
-2.2
-2.3
0.1
-0.9
13.7
Source: European Commission, Credit Suisse
The pension spending projections reveal that pension policies in a majority of EU countries
will lead to a containment of the increase in pension spending through: (1) reduced
generosity of public pension schemes, (2) gradually phasing in increased retirement ages
and (3) restricting or penalizing early retirement.
In order to better understand the impact of increasing the retirement age, Exhibit 26 shows
the projected pension expenditure by age group. Pension expenditure for age groups
younger than 65 is projected to decrease drastically for the EU27 and our selected
countries, especially in Italy and Greece, due to increased retirement ages, increased
restrictions for early and disability pensions as well as demographic factors. Pension
expenditure for the 65-69 year age group is also projected to decrease for the EU27 from
2.2% of GDP in 2010 to 1.8% in 2060. Pension expenditure for the age groups 70+ are
projected to increase as retirement ages increase and the majority of pensioners reach
higher ages. The age group 75+ shows a significant pension expenditure increase in the
EU27 from 3.9% to 7.1% of GDP, especially in Italy and Greece.
Exhibit 26: Gross public pension expenditure by age group, 2010-60
% of GDP
EU27
France
Germany
Italy
Greece
Portugal
Spain
2010
2060
2010
2060
2010
2060
2010
2060
2010
2060
2010
2060
2010
2060
Less than 54
0.6
0.4
0.6
0.6
0.4
0.2
0.3
0.1
1
0.1
0.5
0.3
0.7
0.5
55-59
0.5
0.2
0.4
0.2
0.4
0.2
0.9
0.2
1
0.1
0.9
0.4
0.4
0.3
60-64
1.7
0.6
2.9
0.9
1
0.7
3
0.3
1.8
0.3
2.1
1
1.2
0.6
65-69
2.2
1.8
2.6
2.3
2.4
2
2.9
1.3
2.3
1.7
2.7
2.2
2.1
1.9
70-74
2
2.4
2.4
2.9
2.5
2.5
2.9
2.8
2.2
2.6
2.3
2.1
1.7
2.4
75+
3.9
7.1
5.6
8.2
4.1
7.7
5.3
9.7
4
8.5
4
6.8
3.9
8
Source: European Commission, Credit Suisse
Public expenditure on health is influenced by factors that affect both the demand for and
the supply of health care goods and services. Population size and structure, health status,
income as well as provisions regulating access to health care goods and services are
factors that affect the demand side. Supply-side determinants include the availability of
and distance to health care services, technological progress and the framework regulating
the provision of those goods and services (institutional settings). The health care
expenditure projections highlighted above assume that health care expenditure is driven
by a combination of changes in the population structure, an assumption that half of the
future gains in life expectancy are spent in good health and a moderate impact of income.
European Demographics & Fiscal Sustainability
13
17 January 2013
Our selected countries are quite diverse in terms of health expenditure per capita. France
spent the highest amount per capita while Portugal spent the least in 2010 as shown in
Exhibit 27. As a share of GDP, France spent the highest share of GDP on health
expenditure in 2010 (11.9%) while Italy spent the least (9.5%). We also note that Greece
had the highest share of private health expenditure (4.2%) in 2010 (Exhibit 28).
Exhibit 27: Health expenditure per capita, 2010
Exhibit 28: Health expenditure as a share of GDP,
2010
Current USD
% of GDP
France
4,691
France
2.6
9.3
Germany
4,668
Germany
2.7
9.0
Italy
Portugal
3,248
3.5
11.9
11.6
11
7.5
Private
Spain
Greece
2,883
Greece
Spain
2,729
Portugal
1,000
2,000
3,000
Source: WDI, Credit Suisse
4,000
5,000
0
9.5
6.9
2.1
9.5
7.4
2
4
6
Public
10.2
6.1
2.6
Italy
2,367
-
4.2
8
10
12
Source: WDI, Credit Suisse
Health spending fell across the EU in 2010 as cash-strapped governments curbed outlays
to help cut budgetary deficits. From an annual average growth rate of 4.6% between 2000
and 2009, health spending per capita fell
to -0.6% in 2010 across the EU249. This Exhibit 29: Annual average growth in real
is the first time health spending has per capita expenditure on health, 2000-09
fallen in Europe since 1975, after the first & 2009-10
Rate per annum
Oil Shock.
In Greece, estimates suggest that health
spending per person fell 6.7% in 2010,
reversing the annual growth of 5.7%
between 2000 and 2009 while in Spain
health spending fell by 0.9%. In France,
Italy and Portugal, health spending per
capita growth slowed down in 2010
compared to 2000-09 while it rose in
Germany (Exhibit 29).
8
2000-2009
2009-2010
5.7
6
4.1
4
2.7
2.0
2.1
2
0.8
4.6
1.8
1.3 1.0
0.5
0
-0.9
-2
-0.6
-4
-6
-6.7
The term "long-term care (LTC) -8
services" refers to the organization and
delivery of a broad range of services and
assistance to people who are limited in Source: OECD, Credit Suisse
their ability to function independently on
a daily basis over an extended period of time. Projected public expenditure on LTC
comprises both in-kind and cash benefits. In the future, the demand for formal long-term
9
EU24: Ireland, Estonia, Greece, Lithuania, Czech Republic, Denmark, Slovenia, Spain, United Kingdom, Cyprus, Austria,
Belgium, Finland, Poland, Portugal, France, Italy, Sweden, Netherlands, Hungary, Slovak Republic, Germany, Malta and
Romania.
European Demographics & Fiscal Sustainability
14
17 January 2013
care services is likely to grow, since the number of people who reach 80 years and above
is growing faster than any other segment of the population.
In the light of current sovereign debt crisis and the demographic transition in Europe, more
and more people are calling to assess each member state’s fiscal strength and the ability
of the government to deliver its promises on pensions and health care spending. Both
of these affect a country’s fiscal sustainability. Fiscal sustainability relates to a
government’s ability to maintain the same policies without causing the debt to rise
continuously as a share of GDP. In its latest Fiscal Sustainability Report, the European
Commission has examined the fiscal strength of its member states over different time
horizons. Greece and Portugal are currently experiencing severe fiscal problems and are
implementing adjustment programmes to restore their ability to repay debt and investors’
confidence. As there is uncertainty and changes in terms of fiscal conditions, these two
countries are not analyzed in the 2012 Fiscal Sustainability Report of the European
Commission. Therefore, in the following section, we only focus on the remaining four
countries – France, Germany, Italy and Spain.
Apart from the two original S1 and S2 sustainability gap indicators constructed by the
European Commission (EC) and covered in our previous report which measure the
medium-term and long-term fiscal sustainability risks 10 , a new measure S0 has been
created by the EC to address the current sovereign debt issue and to look at the risk of
fiscal stress in the short term. Unlike S1 and S2, S0 is not a quantification of fiscal
adjustment required but a composite indicator of short-term fiscal stress using a range of
macro-financial and fiscal indicators.
The short-term fiscal sustainability indicator S0 gives an early warning about a country’s
short-term fiscal challenges. It takes into account two sub-indexes incorporating fiscal and
financial-competitiveness variables, which have been proven to be good detectors of
fiscal stress in the past. For example, balance and gross debt as a percentage of GDP,
interest rate and old-age dependency ratio are incorporated to construct the fiscal index
whereas factors such as yield curve and real GDP growth are included to calculate the
financial-competitiveness index.
By comparing the S0 indicator to the
critical threshold, which is separately
derived to be 0.44 in 2012, we can see a
country’s vulnerability to fiscal stress over
a one year horizon. Of the four countries,
Spain is the only country which has its S0
value at the threshold level of 0.44 and is
classified to be at risk in 2013 (Exhibit 30).
The fiscal subcomponent score is 0.54 and
the financial competitiveness score is 0.4
against critical threshold values of 0.34 for
the fiscal and 0.46 for the financial
competitiveness index.
Spanish government debt is projected to
be 97.1% of GDP (above the EU average
of 88.8%), up from 69.3% in 2011.
Exhibit 30: Fiscal Sustainability
Indicator S0, 2012
0.5
Threshold: 0.44
0.4
0.3
0.2
0.1
0
France
Germany
Italy
Spain
Source: European Commission, Credit Suisse
The two fiscal sustainability indicators, S1 and S2, quantify the required fiscal
adjustment, the so called fiscal gap and measure sustainability risk in the medium and
long term respectively. S1 measures the upfront budgetary adjustment required to
reach a target government gross debt of 60% of GDP by 2030. This is expected to be
10
Credit Suisse Demographics Research, A Demographic Perspective of Fiscal Sustainability: Not Just the Immediate-Term
Matters (2010).
European Demographics & Fiscal Sustainability
15
17 January 2013
achieved by a steady improvement in the structural primary balance until 2020 and then
sustained until 2030. Financing for any additional expenditure arising from an ageing
population will also be considered in the calculation of the S1 indicator. The S1 indicator is
based on the initial budgetary position as well as the debt reduction required to reach
the 60% target in 2030 and the adjustment required to deal with cost of ageing.
•
If the S1 indicator is negative, the country is classified as low risk.
•
If S1 is between 0 and 3, the country is expected to undergo a structural adjustment
in its balance of up to 0.5% of GDP per year until 2020 and is assigned medium risk.
•
If S1 is greater than 3, structural adjustment of more than 0.5% of GDP per year is
urgently needed for the country to achieve the 2030 target level. Therefore, the
country is classified as being at high risk.
From the definitions above, Spain is at high risk (5.3) whereas Germany has the lowest
medium-term risk (-0.3) as shown in Exhibit 31.
S2 shows the adjustment to the current structural primary balance needed to fulfil the
infinite horizon inter-temporal budget constraint. In other words, it is the adjustment
needed to make current and future government revenue match current outstanding
government debt and potential future expenditure, including paying for additional
expenditure arising from an ageing population.
•
If S2 is lower than 2, the country is at low risk
•
If S2 is between 2 and 6, the country is at medium risk
•
If S2 is greater than 6, the country is at high risk
As shown in Exhibit 31, EU 27 (2.7) and Spain (4.8) are at medium risk whereas Italy has
the lowest longer-term risk (-2.3).
Exhibit 32: Components of the Sustainability
Indicator S2
Exhibit 31: Sustainability Indicators: S1 & S2
6
5.3
4.8
5
Initial Budgetary Position
4.8
4
4
2.7
3
2
Long term cost of ageing
6
1.8
1.9
1.6
2
1.4
0.6
1
-2.3
-0.3
0
EU 27
France
Germany
Italy
-1
Total: 2.7
1.6
2.2
0.6
0.9
0
2.9
1.4
0.5
2.4
-2.3
1.9
0.7
-1.0
Spain
-3.0
-2
-2
-4
-3
EU 27
S1 indicator
France
Germany
Italy
Spain
S2 indicator
Source: European Commission, Credit Suisse
Source: European Commission, Credit Suisse
S2 is affected by two components – ageing costs and initial budgetary position (the
difference between the initial structural primary balance and the debt-stabilizing primary
surplus to ensure sustainability). Exhibit 32 shows that long-term cost of ageing has a
significant fiscal impact across the three countries and the EU27 except Spain. In Spain,
its initial budgetary position contributes more significantly to its relatively high S2 level,
hence pushing Spain to a relatively higher long-term risk level compared to the other three
countries.
European Demographics & Fiscal Sustainability
16
17 January 2013
A prudent macro fiscal policy frameworks across EU should monitor all the three
sustainability risk measures at different horizons to ensure that fiscal stability provides the
underlying support for growth. The S1 and S2 indicators for the rest of EU 15 countries are
presented in Exhibit 56 of the Appendix. It is important to note that Belgium (6.2) and
Luxembourg (9.7) show up as the highest in terms of the S1 and S2 scores relative to
EU15 average of 1.8 and 2.7.
The direct effect of commonly followed demographic variables on the short-term
sustainability indicator S0 is likely to be minor and much less than the impact on S1 and S2.
In addition to the EC’s sustainability gap indicators mentioned above, there are other
indicators constructed to measure fiscal gaps that need to be closed in order to achieve
fiscal sustainability.
The latest IMF Fiscal Monitor Report 11 presents a measure on fiscal adjustment,
calculated as the gap between the current primary balance and the balance required to
reduce the debt/GDP ratio to a specified level over a given horizon, i.e., to improve the
primary balance by 2020 and subsequently maintain the balance to achieve a sustainable
debt level of 60% by 2030.
Exhibit 33: Fiscal adjustment required to achieve
debt target of 60% in 2030
Exhibit 34: Fiscal adjustment to achieve debt target
of 50% in 2050
% of GDP
% of GDP
Required adjustment
between 2011 and
2020
France
Germany
Italy
Greece
Portugal
Spain
Required adjustment
and change in agerelated spending
during 2011-2030
9
5.8
7.4
5
0.9
3.0
4
5.6
4.6
3
10.5
13.9
2
6.2
10.4
10.6
12.7
Source: IMF, Credit Suisse
7.8
8
2007
7
6
5.4
4.8
4.8
4.1
4.2
3.7
3.3
2.6
3.0
2012
4.2
3.1
1
0
France
Germany
Italy
Greece
Portugal
Spain
Source: OECD, BIS, Credit Suisse
Greece and Spain top the league with the highest adjustment needed to achieve the
target by 2030. After considering the projected increase in age-related expenditure
between 2011 and 2030, the fiscal gaps rise for most countries except Italy as shown in
Exhibit 33.
OECD12 also took a similar approach to calculate the fiscal gap in 2007 and 2012, but with
different targeted debt level: 50% of GDP by 2050. The calculation takes into account
health care and long-term care costs and projected increase in pension spending. Italy,
Greece and Portugal have reduced their fiscal gap since 2007, largely due to decreased
deficit on primary balance thanks to their recent fiscal consolidation efforts (Exhibit 34).
Hence we note that ageing in European countries is projected to have a significant impact
on fiscal sustainability in the future. In similar spirit to us the EC Vice President Olli Rehn
(2012)13 states: “Only an aimed policy action, to achieve the medium-term objectives
would bring the government debt on a downward path and bring the debt down to
60% of GDP by 2013”.
11
IMF, Fiscal Monitor: Taking Stock - A Progress Report on Fiscal Adjustment (October 2012).
12
OECD, Fiscal consolidation: how much is needed to reduce debt to a prudent level? (2012).
13
Olli Rehn, Vice-President of the European Commission, Current Account Surpluses in the EU and the 2012 Fiscal Sustainability
Report: - Rebalancing for Sustainable Growth (Dec 2012).
European Demographics & Fiscal Sustainability
17
17 January 2013
The ongoing sovereign debt crisis as well as publication of the 2009 Sustainability Report
and Ageing Reports by the European Commission has already led some of the countries
to reform their fiscal, pension as well as labour policies. An outline of the countries’ reform
efforts is provided in the report by our Credit Suisse European Economics team, Nothing
like a crisis (November 2012).
14
4. Policy prescriptions for ageing European countries
a) Abolish mandatory retirement ages and adopt flexible enabled
retirement
Since 1983, life expectancy after pensionable ages, i.e., the expected duration of
retirement has increased for the selected European countries (Exhibit 35). The increase is
particularly significant for French and Italian men whose life expectancy after pensionable
age increased by 7.5 years and 5.7 years respectively over 1983-2010. Also, French
women had the highest life expectancy increases of 8.1 years post-pensionable age, over
the 1983-2010 period. The OECD projects further increases for the selected countries in
2030, except for Italy and Greece.
Exhibit 35: Life expectancy after pensionable age
Years
France
Germany
Italy
Greece
Portugal
Spain
1983
Men
2010
2030
1983
Women
2010
2030
14.2
21.7
23.3
18.4
26.5
27.8
15.2
17.0
18.7
20.8
20.7
22.6
17.1
22.8
19.4
26.5
27.4
23.7
21.6
24.0
22.5
23.7
27.1
26.3
13.4
16.3
17.8
16.5
20.2
22.1
14.9
17.9
19.9
18.2
21.8
23.6
Source: OECD, Credit Suisse
Exhibit 36 presents the economic activity rate by age in 2012. France showed a dramatic
fall in economic activity rates of 45.1% upon reaching 60 years of age. Germany similarly
experienced a rapid decline of 41% in economic activity rates, when moving from the 6064 year old age group to the 65+ age group.
Exhibit 36: Economic activity rate by age, 2012
%
TOTAL
15-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65+
France
56.1
16.8
62.9
87.9
89.2
90.4
90.8
90.2
86.2
65.7
20.6
1.8
Germany
59.5
30.5
70.6
82.4
86.7
88.3
90.3
89.8
86.3
77.9
45.1
4.1
Italy
48.5
9.2
47.6
69.8
79.7
81.2
80.5
78.9
74.0
55.4
22.0
3.2
Greece
54.9
8.0
52.2
85.4
87.1
87.5
86.4
83.2
73.2
59.1
34.0
4.9
Portugal
62.1
13.1
60.4
87.7
92.6
92.6
89.3
88.2
82.5
65.2
44.4
16.9
Spain
59.3
19.6
65.2
87.1
89.6
88.5
86.5
84.1
77.8
64.6
37.5
2.2
Source: ILO, Credit Suisse
Exhibit 37 displays economic activity rate by age for males and females and the changes
over time. Female economic activity rates by age have risen significantly especially in
Spain and Germany from 1985 to 2012. Female economic activity rates for the younger
age groups, i.e., 15-24 years, have fallen while they have risen for the other age groups
over time due to increased years of education. In 1985 the female economic activity rate
14
Credit Suisse Demographics Research, New Jobs, New People: Demographic Manifesto (2000).
European Demographics & Fiscal Sustainability
18
17 January 2013
peaked around the age group of 20-29, while in 2012 it peaked around the age group of
25-49 for the selected countries. This reflects the embodiment of human capital in female
economic activity rates and the impact of a better skilled female labour force.
Exhibit 37: Economic activity rate by age, male and female
%
France
100
Italy
Germany
100
100
80
80
80
60
60
60
40
40
40
20
20
20
0
0
0
100
Greece
Spain
Portugal
100
100
80
80
80
60
60
60
40
40
40
20
20
20
0
0
0
Male (1985)
Female (1985)
Male (2012)
Female (2012)
Source: ILO, Credit Suisse
The economic dependency ratio, presented in Exhibit 38, measures the number of nonworkers per worker. In 1990, the economic dependency ratio was greater than one in all
six selected countries, hence the non-workers exceeded the workers in all countries. In
2012, the economic dependency ratio was greater than one in France, Italy and Greece.
Exhibit 38: Economic dependency ratio
Number of non-workers per worker
1.8
France
Germany
Italy
Greece
Portugal
Spain
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
1990
2012
Source: ILO, Credit Suisse
An increased number of older dependents as well as a longer post-retirement period
reduces the productive labour force in the economy and increases the burden on the
government and societies to provide post-retirement pensions and health benefits. As
people live longer, there is a need to abolish mandatory retirement ages, so that people
can continue to work beyond the traditional retirement age.
European Demographics & Fiscal Sustainability
19
17 January 2013
A point to note is that the duration of
the working life increased in all the
selected countries during 2000-10 as
shown in Exhibit 39. The duration of
working life measures the number of
years for which a person aged 15 is
expected to be active in the labour
market throughout his/her life. Spain
has experienced a lengthening of the
working life of its citizens by 3.5 years
since 2000; however, its level was
still lower than the EU27 average in
2010. Italy, with its duration of
working life significantly lower than
that of its peers in the EU, still has
room to further increase the utilisation
of its labour force.
Exhibit 39: Duration of working life
Years
2000
39
37
35
2010
36.8
34.5
36.8
34.3
34.2
32.3
33
31
29.6
29
27
EU27
France Germany
Italy
Greece Portugal Spain
Source: Eurostat, Credit Suisse
The proportion of the life span spent in work in advanced European countries has declined.
In order for the governments to defray the costs associated with increasing longevity, they
have to insist that individuals, families, employers and societies find ways of co-sharing in
these costs by working flexibly, part-year, part-week, part-time beyond mandatory
retirement ages. Flexible and e-nabled working is a work paradigm we have previously
advocated. This is in line with the European Commission calling 2012 the year of “Active
Ageing and Intergenerational Solidarity”.
b) Improve Labour productivity
The labour supply dynamics in a country has an effect on real GDP growth15. Real GDP
growth can be decomposed into three components: working-age population (population
aged 15-64) growth, labour productivity (real GDP/hours worked) growth, and labour
utilisation (hours worked/working age population) growth.
Exhibit 40 displays the demographic decomposition of real GDP growth for the six
selected European countries. Labour productivity growth has been a significant contributor
to real GDP growth across all the six countries, especially during 1970-79. Germany’s
negative working age population growth adversely affected its GDP growth during 2000-11
whereas Greece’s poor economic performance between 2000 and 2011 was partly due to
its negative labour utilisation growth rate.
Working age population growth fell in all the countries except for Spain over 2000-11
compared to 1970-79. That has been one of the reasons why real GDP growth in 2000-11
is lower than that in 1970-79. We identify a need to increase labour productivity growth
rates to compensate for current and future working age population growth rate decreases
in order to increase real GDP growth rates.
15
Credit Suisse Demographics Research, A Demographic Perspective of Economic Growth (2009).
European Demographics & Fiscal Sustainability
20
17 January 2013
Exhibit 40: Real GDP growth decomposition
%
Source: UN, GGDC, Credit Suisse
We now compare the countries in terms of current labour productivity figures. Exhibit 41
presents a sectoral decomposition of GDP and employment for the six selected countries
in 2010. Services was the dominating sector across these six countries.
Exhibit 41: Sectoral decomposition of GDP and employment, 2010
%
Value added (% of GDP)
Agriculture
Industry
Services
France
Germany
Italy
Greece
Portugal
Spain
% of total employment
Agriculture
Industry
Services
2.0
19.9
78.1
2.9
22.3
74.8
0.9
27.9
71.3
1.6
28.4
70.0
1.9
25.3
72.8
3.8
28.8
67.5
3.3
17.9
78.8
12.5
19.7
67.8
2.4
23.5
74.2
10.9
27.7
61.4
2.7
25.7
71.7
4.3
23.1
72.6
Source: UN, ILO, Credit Suisse
Greece had the highest share of gross value added in services (78.8% of GDP) among the six
selected countries and France had the highest employment share in services (74.8% of total
employment) in 2010. Germany had the highest share of value added in industry (27.9% of
GDP) whereas Italy had the highest employment share in the same sector (28.8% of total
employment). Compared to the other six countries, Greece had the highest share in terms of
value added (3.3% of GDP) and employment (12.5% of total employment) in agriculture.
European Demographics & Fiscal Sustainability
21
17 January 2013
Exhibit 42 presents gross value added and employment in absolute numbers for the
different sectors. Gross value added in agriculture was the highest in France (45.97
current USD billion) amongst the six selected countries, while industry and services was
the highest in Germany (826.93 current USD billion and 2,113.38 current USD billion
respectively). Italy employed the most number of people in agriculture (866.8 thousand),
while Germany employed the most number of people in industry (11 million) and services
(27.1 million) in 2010.
Exhibit 42: Sectoral decomposition of gross value sdded and employment, 2010
Gross value added is in current USD billion and employment is in thousands
Gross value added - 2010
Employment - 2010
Current USD Billion
Thousands
Agriculture
Industry
Services
Agriculture
Industry
Services
45.97
457.56
1,798.31
750
5,704.2
19,169.8
25.80
826.93
2,113.38
633.1
10,989.1
27,115.6
34.92
465.13
1,336.84
866.8
6,578
15,427.7
8.78
48.17
212.17
549.8
864.7
2,972.7
4.74
47.08
148.68
542.2
1,377.4
3,054.5
34.52
330.59
922.77
793
4,261.3
13,402.2
France
Germany
Italy
Greece
Portugal
Spain
Source: UN, ILO, Credit Suisse
Taking into account the gross value added and employment in each sector, we compare
the relative productivity of the six countries across agriculture, industry and services in
2010 in Exhibit 43. France outperformed its peers and had the highest gross value added
per worker across all three sectors in 2010. Portugal, on the other hand, was the least
productive across agriculture, industry and services among the six selected countries.
Exhibit 43: Gross value added per worker, 2010
Thousands of USD
100
90
80
70
60
50
40
30
20
10
0
94
Agriculture
87
80
75 78
Industry
Services
78
71
71
61
69
56
49
41
40
44
34
16
9
France
Germany
Italy
Greece
Portugal
Spain
Source: UN, ILO, Credit Suisse
Hence labour productivity needs to be improved in some of these less productive countries
to compensate for reductions in working age population growth. Improved education and
skill based learning will help to improve labour productivity levels. In addition, proactive
policies to engage women as well as those older workers who are able to contribute
productively beyond the mandatory retirement ages would be fruitful in the medium and
long term. Exhibit 44 presents gross school enrolment levels for the selected countries.
While there have been improvements since 1991, there still exists ample scope to
increase tertiary enrolment levels in all these countries.
European Demographics & Fiscal Sustainability
22
17 January 2013
Exhibit 44: Gross school enrolment
%
Primary
Secondary
Tertiary
1991
2010
1991
2010
1991
2010
France
108.5
110.0
99.7
113.2
39.5
56.7
Germany
101.4
102.3
98.1
103.3
33.0
-
Italy
99.2
101.8
79.4
100.4
31.6
65.0
Greece
98.4
100.8
93.8
109.5
36.3
89.4 (2007)
Portugal
118.8
111.5
66.9
109.1
23.4
65.5
Spain
106.4
105.5
104.1
124.7
37.2
78.1
European Union
101.7
104.1
93.1
104.6
30.7
61.4
Source: World Bank, Credit Suisse
An indirect proxy related to the level of tertiary education and skill level of the economy is
the expenditure on research and development. As Exhibit 45 displays, Germany had the
highest R&D spending as a share of GDP (2.8%), while Greece had the least (0.6%) in
2010. Publicly financed expenditure on R&D, however, was the highest in France (0.9% of
GDP). Patent applications in 2011 were also the highest in Germany (7.3 per 10,000
people) while patent grants were the highest in France (1.6 per 10,000 people) as shown
in Exhibit 46.
Exhibit 45: Gross domestic expenditure on R&D
(GERD), 2010
Exhibit 46: Patents statistics, 2011
% of GDP
Per 10,000 people
France
Germany
Italy
Greece
Portugal
Spain
R&D spending
Publicly financed GERD
8
2.25
0.92
7
2.82
0.84
6
1.26
0.55
5
0.6
0.29
4
1.59
na
1.39
0.7
3
2
7.3
Patent application
Patent grants
2.6
1.6
1.4
1.6
1.0
1
0.70.4
0.6
0.1
0.80.6
0
France
Source: OECD, Credit Suisse
Germany
Italy
Greece
(2010)
Portugal
Spain
Source: WIPO (World Intellectual Property Organization), Credit Suisse
Exhibit 47 presents the share of the young population currently not in education and
neither employed or economically active in 2010. In 2010, Spain had the highest share of
young population not in education and unemployed or inactive amongst the selected
countries.
To improve the transition of young people from school to work, education systems should
work to ensure that people have skills that match the requirements of the labour market,
and to minimize the proportion of young adults who are neither in school nor in work.
European Demographics & Fiscal Sustainability
23
17 January 2013
Exhibit 47: Share of population not in education and unemployed or inactive,
2010
% of population in the age group
28.2
30
25
17.8
13.7
15
28.6
23.6
21.6
21.0
20.6
20
10
27.4
27.1
16.4
15.7
12.8
12.5
7.9
7.5
7.4
3.7
5
0
France
Germany
Italy
Greece
15-19
20-24
25-29
Portugal
Spain
Source: OECD, Credit Suisse
c) Increase female labour participation rates with the use of technology
to bridge the male-female gap
Another way to deal with the ageing problem is to actively engage the female population to
participate in the labour force. Exhibit 48 shows the gap between male and female
economic activity rates in 2012. The gap was the highest in Italy (22%) and Greece (20%)
whereas France (11%) and Portugal (12%) showed the lowest gap due to a relatively high
female participation rate. Greece, Italy and Spain need to lower this gap in order to attain a
more equitable labour force and to engage productively the potential of their female
population. This is one of the easiest sources of labour that can be effectively employed.
Exhibit 48: Economic activity rate – men and women, 2012
%
Male
80
70
60
50
40
30
20
10
0
Gap: 11
Female
12
13
22
France
Germany
Italy
16
20
Greece
Portugal
Spain
Source: ILO, Credit Suisse
d) Selective immigration
Selective immigration policies can be another solution to offset the unfavourable
demographics some countries are experiencing. Exhibit 49 presents the two sources that
contribute to the overall population change – natural population change (number of
births less the number of deaths) and net migration (immigration-emigration). In
Germany, net migration has been the dominating source contributing to the overall
population change since the 1970s. Germany, the only country with negative overall
population growth rate among the EU15, currently has a migration level that is not large
European Demographics & Fiscal Sustainability
24
17 January 2013
enough to offset the negative natural population change between 2010 and 2015. In
Greece, Portugal and Italy positive net migration has offset the negative natural population
change such that the overall population change in 2010-15 is positive.
Exhibit 49: Population change decomposed – natural population change and net migration
In thousands
Germany
4,000
Greece
800
3,000
600
2,000
400
1,000
200
0
0
-1,000
-200
1950-2,000 1955
19601965
19701975
3,500
19801985
19901995
20002005
20102015
19601965
19701975
19801985
19901995
20002005
20102015
Portugal
800
France
3,000
1950-400 1955
600
2,500
400
2,000
200
1,500
0
1,000
-200
500
-400 19501955
-600
0
19501955
19601965
19701975
19801985
19901995
20002005
20102015
19701975
19801985
19901995
20002005
20102015
-800
Spain
4,000
Italy
3,000
19601965
3,000
2,250
2,000
1,500
1,000
750
0
0
-1,000
-750
19501955
19601965
19701975
19801985
19901995
20002005
20102015
19501955
19601965
19701975
19801985
19901995
20002005
20102015
Source: UN, Credit Suisse
Exhibits 50 and 51 show the share of foreign population as a share of total population
and foreign labour force as a share of total labour force for the selected countries.
The foreign population share of total population has increased significantly in Spain
from 3.4% (2000) to 12.4% (2010) while the share in Germany decreased from 8.9%
(2000) to 8.3% (2010). In Spain the share of foreign labour force increased quite
substantially from 2.5% (2000) to 8.3% (2008) and in Greece it increased from 3.5%
(2000) to 8.2% (2008) to 9.3% (2009).
European Demographics & Fiscal Sustainability
25
17 January 2013
Exhibit 50: Share of foreign population
Exhibit 51: Share of foreign labour force
% of total population
% of total labour force
14.0
10.0
12.0
8.0
10.0
8.0
6.0
6.0
4.0
4.0
2.0
2.0
..
0.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
France
Germany
Italy
Greece
Portugal
Spain
Source: OECD, Credit Suisse
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
France
Germany
Italy
Greece
Portugal
Spain
Source: OECD, Credit Suisse
Exhibit 52 shows the sectors in which foreign born people were employed in 2011 in
the selected countries. Barring other services, mining, manufacturing and energy
employed the highest share of total foreign born employment in Germany, Italy and
Portugal while construction had the highest share of total foreign born employment in
France and Greece. Hotels and restaurants employed the highest share of foreign
born employment in Spain.
Exhibit 52: Employment of foreign-born persons by sector, 2011
% of total foreign born employment
Agriculture & Mining, Manu- Construction Wholesale &
fishing
facturing & Energy
retail trade
France
Germany
Greece
Italy
Portugal
Spain
Hotels & Education Health Households Admin. & Other
restaurants
ETO
services
1.3
11.7
12.3
11.7
7.0
5.2
11.6
5.4
6.4
27.5
0.7
25.6
7.0
12.7
8.8
4.5
10.7
1.1
2.4
26.6
8.9
13.4
19.2
14.6
12.1
1.5
3.2
14.7
0.9
11.5
4.0
20.6
13.6
10.1
8.8
1.9
4.8
17.0
1.4
17.7
-
14.1
9.9
13.3
10.5
9.1
7.2
5.1
7.1
22.2
5.7
9.3
10.5
13.6
16.1
2.2
5.0
14.9
2.0
20.6
Source: OECD, Credit Suisse
We believe that each country should evaluate the skills and labour force demand
relative to its indigenous supply, conduct a cost-benefit analysis of migration and the
horizons over which to allow “selective immigration” in line with its skills, education,
labour mobility, fiscal stance. Immigration should not be based only on political
considerations, as clearly economics should have an important role to play.
5. Conclusions
Fiscal sustainability is not just an immediate, short-term or medium-term issue.
Governments need to address it by recognizing the changing demographics of their
country as well as undertaking holistic reform which acknowledges the existing
heterogeneity in education, skills, productivity, male-female gaps, and domesticforeign worker shares. Focus on all three fiscal sustainability measures is desirable
for strategic management of fiscal risks. We believe that any framework for a
reconstituted EU needs proactively to understand and incorporate the existing
demographic and economic heterogeneity (differences) across member states to deal
prudently with macro-fiscal stability issues.
European Demographics & Fiscal Sustainability
26
17 January 2013
References
Credit Suisse Demographics Research, "How Increasing Longevity Affects Us All?:
Market, Economic & Social Implications" (March 2012)
Credit Suisse Demographics
Demographics" (Dec 2011)
Research,
"Spotlighting
the
European
Union's
Credit Suisse Demographics Research, "Macro Fiscal Sustainability to Micro Economic
Conditions of the Old in the Oldest Five Countries" (Aug 2011)
Credit Suisse Demographics Research, "Longer Lives, Changing Life Cycles: Exploring
Consumer and Worker Implications" (July 2011)
Credit Suisse Demographics Research, "European Demographics at the CoreConsumers and Workers” (Feb 2010)
Credit Suisse Demographics Research, "A Demographic Perspective of Fiscal
Sustainability: Not Just the Immediate-Term Matters" (Feb 2010)
Credit Suisse Demographics Research, "Demographics, Japanese Current Account and a
Disappearing Savings Rate" (Oct 2009)
Credit Suisse Demographics Research, "A Demographic Perspective of Economic
Growth" (Apr 2009)
Credit Suisse Demographics Research, "Demographics, Capital Flows & Exchange Rates"
(Aug 2007)
Credit Suisse Demographics Research, "New Jobs, New People: Demographic Manifesto"
(2000)
Credit Suisse European Economics, “ Nothing like a crisis” (Nov 2012)
Mario Draghi, President of the ECB & Vítor Constâncio, Vice-President of the ECB ,
“Introductory statement to the press conference” (Barcelona, 3 May 2012)
European Commission, “Fiscal Sustainability Report 2012”, European Economy 8/2012
(2012)
European Commission and Economic Policy Committee, “The 2012 Ageing Report:
Economic and budgetary projections for the 27 EU Member States (2010-2060)”,
European Economy, No. 2/2012 (2012)
IMF, "Fiscal Monitor: Taking Stock- A Progress Report on Fiscal Adjustment" (October
2012)
OECD, "Fiscal consolidation: how much is needed to reduce debt to a prudent level?"
(2012)
R. Rajan, “Fault Lines”, Princeton University Press, (2010)
European Demographics & Fiscal Sustainability
27
17 January 2013
Appendix
Exhibit 53: Distribution of the elderly population, 2012
Share of total population
Austria
Belgium
Bulgaria
Cyprus
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
Netherlands
Poland
Portugal
Romania
Slovakia
Slovenia
Spain
Sweden
United Kingdom
EU 15
EU 27
60-69
70-79
80+
10.8
7.9
4.9
10.9
7.7
5.3
12.6
8.2
4.2
8.9
5.4
2.7
12.6
6.4
3.8
12.4
7.2
4.2
10.5
8.2
4.6
13.4
7.6
4.9
11.0
7.0
5.6
11.1
10.3
5.3
10.7
8.8
5.3
11.7
7.5
4.2
8.9
5.2
2.9
11.6
9.2
6.2
10.3
8.5
4.5
9.6
7.7
4.0
9.1
6.2
3.9
12.5
6.9
3.3
11.8
6.9
4.1
10.4
6.3
3.7
11.0
8.4
4.9
10.1
7.5
3.4
10.0
5.5
2.9
11.3
7.7
4.4
10.0
7.4
5.3
12.4
7.6
5.3
11.0
7.2
4.7
11.1
8.2
5.3
11.0
8.0
5.0
Source: UN, Credit Suisse
European Demographics & Fiscal Sustainability
28
17 January 2013
Exhibit 54: Population pyramids, 1980, 2010 and 2030
Population by age, thousands
France 1980
France 2010
France 2030
80+
80+
80+
70-74
70-74
70-74
60-64
60-64
60-64
50-54
50-54
50-54
40-44
40-44
40-44
30-34
30-34
30-34
20-24
20-24
20-24
10-14
10-14
10-14
0-4
0-4
2,500 2,000 1,500 1,000 500
0
500 1,000 1,500 2,000 2,500
0-4
2,500 2,000 1,500 1,000 500
Germany 1980
0
500 1,000 1,500 2,000 2,500
4,000
80+
70-74
70-74
70-74
60-64
60-64
60-64
50-54
50-54
50-54
40-44
40-44
40-44
30-34
30-34
30-34
20-24
20-24
20-24
10-14
10-14
10-14
0-4
0-4
2,000
1,000
0
1,000
2,000
3,000
4,000
Italy 1980
0
1,000 2,000 3,000 4,000 5,000
4,000
70-74
70-74
70-74
60-64
60-64
60-64
50-54
50-54
50-54
40-44
40-44
40-44
30-34
30-34
30-34
20-24
20-24
20-24
10-14
10-14
10-14
0-4
0-4
500
1,500
2,500
2,000
1,000
0
1,000
2,000
3,000
4,000
80+
70-74
70-74
70-74
60-64
60-64
60-64
50-54
50-54
50-54
40-44
40-44
40-44
30-34
30-34
30-34
20-24
20-24
20-24
10-14
10-14
10-14
0-4
0-4
0
250
250
0
250
500
500
80+
70-74
70-74
70-74
60-64
60-64
60-64
50-54
50-54
50-54
40-44
40-44
40-44
30-34
30-34
30-34
20-24
20-24
20-24
10-14
10-14
10-14
0-4
0-4
250
250
0
250
500
500
Spain 2010
Spain1980
80+
80+
70-74
70-74
70-74
60-64
60-64
60-64
50-54
50-54
50-54
40-44
40-44
40-44
30-34
30-34
30-34
20-24
20-24
20-24
10-14
10-14
10-14
0-4
0-4
1,500
1,000
500
0
500
1,000
1,500
2,000
2,000
3,000
4,000
2,000
1,000
0
1,000
2,000
3,000
250
0
250
500
2,500 2,000 1,500 1,000 500
250
0
250
500
Spain 2030
80+
2,000
1,000
0-4
500
500
0
Portugal 2030
80+
0
3,000
Portugal 2010
Portugal 1980
80+
250
1,000
0-4
500
500
3,000
Greece 2030
80+
500
2,000
Greece 2010
Greece 1980
250
2,000
0-4
3,000
80+
500
1,000
Italy 2030
80+
500
3,000
Italy 2010
80+
1,500
0
0-4
4,000 3,000 2,000 1,000
80+
2,500
1,000
Germany 2030
80+
3,000
2,000
Germany 2010
80+
4,000
3,000
0-4
0
500 1,000 1,500 2,000 2,500
2,500 2,000 1,500 1,000 500
0
500 1,000 1,500 2,000 2,500
Source: UN, Credit Suisse
European Demographics & Fiscal Sustainability
29
17 January 2013
Exhibit 55: Savings, Investment and Current Account Balance
% of GDP
25
3
24
23
2
22
1
21
0
20
19
-1
18
-2
-3
17
1980
1984
1988
1992
1996
2000
2004
2008
2012
16
8
7
6
5
4
3
2
1
0
-1
-2
30
28
26
-2
25
-4
20
-6
-8
15
-10
10
-12
5
-14
1984
1988
1992
1996
28
3
26
2
24
1980
1984
1988
1992
1996
2000
2004
2008
2012
0
22
-1
20
-2
18
-3
16
-4
22
20
18
1980
1984
1988
1992
Portugal
30
1980
4
1
24
Greece
0
-16
Italy
Germany
France
4
2000
2004
2008
2012
0
6
4
2
0
-2
-4
-6
-8
-10
-12
-14
-16
1980
1984
1988
1992
1996
1996
2000
2004
2008
2012
16
Spain
2000
2004
2008
2012
40
4
35
35
2
30
30
0
25
-2
20
-4
15
-6
10
-8
5
-10
0
-12
25
20
15
10
5
1980
1984
1988
1992
1996
2000
2004
2008
2012
0
Source: IMF, Credit Suisse
Exhibit 56: Fiscal sustainability Indicators: S1 & S2
9.7
10
S1
8
7.4
S2
6.2
4.1
4
2
2.7
1.8
5.9
5.8
6
5.3
4.8
5 5.2
4.1
3.3
2.6
2
1.7
1.91.6
2.2
1.4
0.6
2
0.3
0
-0.3
-2
-4
-1.8
-2.3
-3.4
Source: European Commission, Credit Suisse
* This excludes Greece, Ireland and Portugal.
European Demographics & Fiscal Sustainability
30
GLOBAL DEMOGRAPHICS & PENSIONS RESEARCH
Amlan Roy, Managing Director
Head of Global Demographics & Pensions Research
+44 20 7888 1501
Eric Miller, Managing Director
Global Head of Fixed Income and Economic Research
+1 212 538 6480
LONDON
Amlan Roy, Managing Director
Sonali Punhani, Associate
+44 20 7888 1501
amlan.roy@credit-suisse.com
+44 20 7883 4297
sonali.punhani@credit-suisse.com
Angela Hsieh, Analyst
+44 20 7883 9639
angela.hsieh@credit-suisse.com
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