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The Real European Debt Crisis

 June 08, 2011 02:01 PM

There have been numerous stories about the Euro-crisis, a possible Greek default and the PIIGs. However, there is another looming crisis on the horizon for Europe, unless something changes drastically.

One of the biggest factors behind growth is; demographics, demographics, demographics. Despite Japan having 10x the GDP per capita of China; China is now the second largest economy of the world due to their massive population of 1.3 billion people. India is also becoming a super power due to the massive growth rate of the population. India had the world's largest economy, with a 29% share of world GDP in 1700 , when India numbered 180 million people and represented 20% of the world's population. These are just a few statics to show how important expanding populations are for economic growth and prosperity.

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However, Europe looks like it is in serious trouble.

The concern about the PIIGs is putting a veil on the real crisis that is spurring up in the European nations. There is realization of the low fertility rate that is prevalent in Europe, but not a lot of studies highlight the consequence of this problem and the result of increasing aging population on the European economy. The careless government spending is not the only reason for the meltdown of the European economy; it has a lot to do with the changing demographics of the nation and the need to pay for health care and retirement benefits. This will lead to an exploding debt and decreased economic growth.

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The problem is that European countries still abide by the 19th century policies and have for decades maintained an economic system which supports and facilitates the satisfaction of the needs of the senior citizens with high focus on provision of health, retirement and old-age welfare. The debt crisis is merely a proxy for the crisis of the aging population. It is estimated that over the next 40 years, one-third of the total European population will be well over the age of 60 years. This demographic problem is similar to that prevalent in countries like Japan.

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