Deficits, Democracy, and Demographics: Europe's Three Crises

Most scholars and journalistic commentators have treated the 2008-present Euro crisis as an economic and fiscal one.  It certainly is that, but it is also much more than that. The treatment of the crisis as a chiefly fiscal and economic one, though understandable, obscures the wider context, and that context is institutional and demographic. In the former, the institutions governing EU monetary union were insufficiently developed: too weak to prevent a dangerous escalation of asset prices and too weak to confront the crisis through a bold and open (as opposed to gradual and back-door) bond-buying program that would provide calm to the markets. In the latter, Europe’s economic and fiscal problems are and will increasingly be exacerbated by the continent’s demographic position and its demographic development. Simply put, the costs of unemployment are disproportionately concentrated among the young (in southern Europe) and immigrants/ethnic minorities, who are disproportionately young (in northern Europe). In addition, chronically low birth rates mean that some European countries face rising health and pension costs in the context of already very weak fiscal positions. With the exception of Germany, demographic developments are worst in eastern and southern Europe. In the last, this means that the southern European countries have the worst fiscal positions, the worst demographic trends, and the most generous pension systems.  This article explores the three crises, how they relate, and the institutional, cultural, and economic limits the EU faces in exiting them.