Published in Business Spectator (Melbourne), 15 April 2010

http://www.businessspectator.com.au/bs.nsf/Article/Italy-Greece-Greek-crisis-sovereign-debt-Spain-pd20100414-4H8TV?OpenDocument&src=blb

Schoolchildren around the world learn that European history starts with Athens and Rome. In future times, they will also be taught that the end of modern Europe began in the same places.

The European welfare state model hit the buffers in Greece’s fiscal crisis. Universal cradle-to-grave care for everyone as practised by consecutive Greek governments will never return. Not because European politicians would not want to provide it but because such promises can no longer be paid for. Greece’s current budgetary near-death experience only foreshadows what most of Europe will suffer in the coming years.

There is, however, another problem looming on the European horizon that may trigger an even more severe crisis than increasing sovereign debt. A demographic earthquake is going to shake the very foundations of European society. To feel its first tremors, there is no better place to visit than Italy.

Italy is a country of delicious pasta, magnificent churches, and beautiful countryside. Rounding off the image of il bel paese is the idea of the Italian family dominated by a resolute mamma and her many bambini. You can still find pasta, churches and countryside in contemporary Italy, but the typical Italian family is just a piece of nostalgic folklore.

Europe as a whole has embarked on a process of population ageing and shrinking, but Italy is well ahead of its neighbours in both respects. In 2005, Europe was already the world’s oldest continent with an average age of 38.9 years. By comparison, the average age was 36.3 years in America and Canada, 27.6 years in Asia, and only 19.0 years in Africa. Italy’s average age, however, was in a league of its own at 42.3 years. The nation of bambini has turned grey.

On the positive side of this development is the fact that Italians live longer than most other nationalities, except Japan. Italian men may expect to live to 78 years on average; Italian women even reach 84 years. Whether it is the result of the Mediterranean diet or due to something else, the Italian lifestyle is conducive to high life expectancy.

Perhaps it’s because Italians don’t worry too much about the future even if they have every reason to be gloomy. Italy’s remarkable longevity is in fact not the most important factor behind its rapidly ageing society. The key driver is the decline in fertility.

Italy indeed used to be a country of many children. In 1964, an Italian woman gave birth to an average of 2.7 children. Since the 1970s, the fertility rate has dropped sharply to an all-time low of 1.19 in 1995. It has somewhat recovered to 1.35 it is still well below the replacement level of 2.1 which demographers deem necessary to keep the population stable.

Why fertility in Italy collapsed as much as it did is a matter for debate. Cultural pessimists like Theodore Dalrymple argue that modern European society values its material standard of living more highly than anything else. Seen from this point of view, children would only be “obstructions to the enjoyment of life, a drain on resources, an obstacle to next year’s holiday in Bali or wherever it might be”, he writes in his just released book The New Vichy Syndrome.

There may be some truth to this assertion, but not quite in the way Dalrymple imagines. It is correct that the decline in fertility has something to do with the material conditions of the younger generation. However, it would be unfair to blame their growing childlessness on selfish greed.

A survey among women aged 25 to 39 in European Union member states showed that there is no other country with as many childless women as Italy. Nevertheless, the share of Italian women who categorically do not want children is much lower than in most other European countries. There is a paradox, then, why many Italian women want to be a mamma and yet very few actually give birth.

The paradox can be explained by looking at the circumstances of Italy’s young generation. They may be living in one of the most prosperous – and beautiful – countries on the planet, yet living la dolce vita has become an unaffordable dream for them.

Rents in Italy’s cities and a lack of good job opportunities are the most pressing problems for young Italians, and so it is not surprising that a whole generation of youngsters have become mammoni (mother’s darlings). They stay at home well into their 20s and sometimes 30s. A staggering 92 percent of 18 to 24-year-olds and 62 percent of Italy’s 25 to 29-year-olds reside at ‘Hotel Mamma’. They have little choice as two-thirds of them earn monthly incomes below the €1,000 mark ($1,450). Such young adults are very unlikely to start a family. They are busy enough making ends meet.

The problem with demography is its inertia. As leading demographer Herwig Birg put it, once a development has been going in the wrong direction for 25 years, it takes 75 years to correct it. There is no quick fix for demographic faults; the skid marks of demographic change are too deep and long.

Even if Italy somehow managed to improve the situation of its young generation and boost fertility rates to more sustainable levels, it could not hold off the process of ageing and shrinking for decades. The potential mothers Italy needs were not born a generation ago.

Immigration is unlikely to improve Italy’s demographic situation, either. The country would need an annual influx of more than 700,000 migrants to maintain its current workforce-to-retiree ratio, according to strategic consultancy STRATFOR. Such an unprecedented increase of Italy’s migrant population from about four to five million people today is not politically viable, though. Mass immigration is already one of the most contentious issues in Italian politics.

Given these prospects, there will be fewer and older Italians for generations. Until 2030, Italy’s population will fall by about two million people. This would be bad enough, but by this stage Italy’s median age will be well over 50 years. It does not require much imagination to understand the burden this will pose on the Italian government as the main provider of health services and pensions. Also bear in mind that Italy today is already one of the most heavily indebted countries in Europe. If nothing else kills the euro currency beforehand, Italy’s demographic time bomb will do the job.

In Europe, the Italians are furthest advanced on the trajectory of demographic change. Other nations like Germany, France or Spain are not far behind, though.

For a long time of post-War history, Europeans (at least in Western Europe) believed they had created a comfortable, secure and prosperous continent. As the Greek example shows, this was partly fuelled by ongoing budget deficits, which cannot be sustained forever. The common European phenomenon of ageing and shrinking populations, well underway in Italy, will inevitably turn this public finance crisis into a debt catastrophe.

Modern Europe began to fall apart in Greece and Italy. If Italian schoolchildren won’t be taught this history lesson in the future, it’s only because there will hardly be any bambini left to teach.