Seeking Alpha
Long only, deep value, growth at reasonable price, carmakers
Profile| Send Message|
( followers)  

These days everybody talks about Europe's debt problem and how southern Europe is destroying the economy and the prospects of rest of Europe. In the short term, it is true that countries in the South will have to face painful realities surrounding their economies, however in the long term, all of Europe will suffer from a chronic disease that's been in the continent for a few decades now. This disease is called "demographic time bomb" and when it strikes, it will leave no prisoners behind. Not even countries with relatively healthier economies such as Finland, Germany and Netherlands are immune to it.

As you can see in the table below, most European countries, if not all, are in deep trouble in the decades to come. In Italy, an average citizen lives 18.77 years beyond retirement and in France this number is 19.19 years. Even in countries like Germany, Finland and Netherlands, retirees live for nearly 15 years. This trend is unsustainable as these countries spend between 3.5% and 11.7% of their GDP on healthcare costs alone. In the near future, as medicine and technology improves, people will live longer and longer, which will force these countries to increase their retirement ages. For reference, only about 20 years ago, an average retiree lived about 5-7 years. This is less than half of today's number.

Italy

Spain

Greece

France

Germany

Finland

Netherlands

Turkey

Brazil

Median Age

43.5

40.5

42.5

39.9

44.9

42.5

41.1

28.5

29.3

Life Expectancy

81.77

81.17

79.92

81.19

80.07

79.27

79.68

72.50

72.53

Retirement Age

63.00

67.00

62.00

62.00

67.00

65.00

65.00

No Limit

63.00

Life After Retirement

18.77

14.17

17.92

19.19

13.07

14.27

14.68

N/A

12.53

Fertility Rate

1.39

1.47

1.38

1.96

1.41

1.73

1.66

2.15

2.18

Health Expenditures vs. GDP

5.1%

9.7%

7.4%

3.5%

8.1%

11.7%

10.8%

6.7%

9.0%

Youth Unemployment

25.4%

35.0%

25.8%

22.6%

11.0%

20.5%

6.6%

25.3%

17.8%

Because all these countries have a fertility rate below 2.1 (i.e., the rate where a population replaces itself), they will have declining populations. In most of European countries, the median age is around 40. When the low fertility rate is added to the equation, this will result in a population that gets older and older. In a healthy economy, a country needs at least 5 workers that pay taxes per retiree. If this demographic trend continues, most European nations will have about 1-2 workers per retiree. This is disastrous for these countries.

Another alarming thing for these countries is youth employment. Not only do these countries have fewer youth, but their youth also have trouble finding employment. This is mostly due to the fact that most manufacturing jobs were lost to Asian countries in the last 2-3 decades. I don't think those jobs will ever come back to Europe as the cost of hiring Europeans is far above hiring in Asia.

In the next 10-15 years, the high quality of life in Europe will start declining rapidly, including the countries in the north. Countries with high fertility and abundant youth population like Turkey and Brazil should "steal" most of the remaining employment from Europe. Long term investors should consider taking their investments out of Europe and investing in countries with high growth potential.

Source: Beware Of Europe's Ticking Demographic Time Bomb