More work, not more migrants, the answer to Eurozone woes

Aug 30 2006 by Brian Amble Print This Article

Europeans could find themselves having to retire later and work longer hours if the eurozone is to stave off a sharp decline in long-term economic growth caused by its ageing population.

That's the unpalatable message of a new report published by the European Central Bank which delivers a sharp rebuttal to the idea that economic immigration can counteract demographic pressure.

With the population of the 12-country eurozone projected to decline after 2020, by 2050 one in every three will be older than 64.

Meanwhile, the report says, economic growth could fall to around only one percent of GDP per year between 2020 and 2050 Ė less than half the average during the past 25 years.

But economic migration is not the answer to these problems, it argues.

"A number of recent studies conclude that the stabilisation of old age dependency ratios through migration alone is unlikely, due to the huge number of migrants that would be required.

"Indeed, the role of migration in addressing the European demographic challenge is likely to be only complementary to other policies, given natural limits to the feasible number of migrants and political constraints."

Instead, the paper argues that governments should focus on reducing the number of economically inactive individuals, notably by increasing the participation of women in the workplace and cutting the rate of early retirement which "often discourage labour market entry, particularly of women and older workers."

And in a direct challenge to the shorter working hours policies of France and Germany, the report adds that "a number of euro area countries have a large potential to increase labour supply by raising average hours worked and the effective retirement age," the report says.

But while the ECB's views on economic migration might be popular in many European countries, they are certainly not echoed by employers in the UK.

Since the expansion of the EU in May 2004, some 600,000 east Europeans have arrived in Britain in what is the largest wave of immigration that country has ever seen.

With Romania and Bulgaria due to enter the EU IN 2007, vocal opposition has arisen to allowing their citizens the same unfettered access to the UK labour market.

Yet the leaders of some of the UK's biggest business- including supermarket giant Sainsbury, energy firm Centrica and investment bank Merrill Lynch - have called for the open door policy to continue, arguing that "a so-called pause in migration from these countries would be tantamount to a reversal of policy and could work against Britain's interests,"

This unequivocal message that immigration is "a cause for support, not retrenchment," came in a statement from the Business for New Europe Group (BNEG), quoted in the Independent newspaper.

"The simple fact is that workers from other European countries come to the UK because there are jobs," the statement said. " It is a cause for support, not retrenchment."

"We believe that in reaching its decision the UK Government should be guided both by economic reason and by recent historical experience."