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To say that Greece has garnered a lot of attention lately would be an understatement. As it looked more likely that the country would adopt a new austerity budget and receive a needed dose of financing, stock markets rallied. The US stock market, in particular, has been on a tear lately.

As of the close on Thursday, the Dow Jones Industrial Average climbed more than 450 points since its open Monday morning. I don’t want to rain on anyone’s parade, but I am fairly certain that once the euphoria wears off, investors will realize that Greece’s longer-term outlook is still not too rosy.

There are many reasons to be watching Greece. It is part of the eurozone. Greece is a good-sized economy. In terms of 2009 GDP in current US dollars, Greece comes in at number twenty-seven with about $330 billion, according to data from the World Bank. Further, it conducts a decent amount of trade; according to the CIA World Factbook, Greece imported approximately $45 billion worth of goods and services in 2010. Keep those numbers in mind when you consider that the government just approved $40 billion in spending cuts and tax increases.

There has been much concern about Greece’s ability to handle its debt and revive its economy, particularly when its citizens protest budget proposals that include spending cuts and tax hikes, which will likely cause further contraction. With a domestic economy that is facing considerable difficulty even before the contractionary fiscal policy is considered, one has to wonder about the likelihood for growth. The IMF currently estimates Greece’s real GDP to shrink 3% this year, but climb 1.1% in 2012. I have to wonder if maybe those estimates might get reduced a bit because of the spending cuts, tax increases, and the effects of the riots.

Given the nation’s rich history, one might argue that tourism could help. According to the CIA World Factbook, tourism accounts for 15% of Greece’s GDP. Admittedly, the country may find it difficult to grow this portion of the economy with protests, violent or not, particularly if global growth eases.

All of that is relatively near-term; I would like to bring to light a longer running issue that many countries will need to address, but could prove particularly difficult in some nations, such as Greece, given the current dynamics: Demographics.

Demographics play an important role in any country’s economy. Think about how the Baby Boomer generation has shaped the dynamics of the US economy. The Baby Boomers, those born between 1946 and 1964, are hitting the key retirement age. Now, think about what that means for Social Security and health care spending. Also consider how the decline in asset prices (both stocks and real estate) has impacted the retirement accounts of the Baby Boomers and what that might mean for many of them to delay retirement or to enter retirement with less than they expected (or hoped). Think about what that could potentially mean for tax revenues down the road.

According to the CIA World Factbook, 13.1% of the US population has already hit the retirement age of 65. And, over the next 20 years or so, that segment of the population is going to swell. By comparison, 66.8% are in the working years of 15 – 64. And 20.1% of the population is age 14 and younger.

Compare that with Greece. According to the CIA World Factbook, fully 19.6% of Greece’s population is 65 and older. Working age people (15 – 64) make up 66.2% of the population. The remaining 14.2% are 14 and younger. Indeed, we see that Greece is one of the countries going gray, a trend that is called “The Aging of Europe”.

These demographic trends in Greece suggest that the government may face additional pressure in coming years, as more of its population requires medical and social services. The cutbacks the Greek government is making now in some areas may be offset down the road by higher spending in other areas.

I hate to admit that I am generally not optimistic on Greece’s economic near- to intermediate-term economic future. I think that the country has to go farther to change the structure of its economy than enact belt tightening policies and sell-off assets. And remember, assets can only be sold once. The question, then, is not just will Greece be able to right itself while it is covered under the bailout loans, but will Greece right itself sufficiently to not only meet its debt obligations but also meet the growing needs of its aging population. I don’t see how policies such as raising taxes on the minimum wage will do the job. While investors are currently applauding Greece’s parliamentary vote, one has to wonder if Greece dodged a bullet today only to get hit with a cannonball tomorrow.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Greece's Economy: Demographic Trends Suggest Additional Pressure in Coming Years