T he next decade was always going to be difficult. As retirement beckons for the middle-aged “bulge” in many national populations, governments have been facing an expensive demographic transformation. Now, the economic crisis makes the outlook only worse.
Once the recession passes, countries will need to work on closing their gaping fiscal deficits without triggering further collapses in output. They will also need to service bloated national debts. The International Monetary Fund estimates that among the Group of 20 nations whose leaders meet in London today, the industrialised members will have increased their national debts by an average equivalent to nearly 25 per cent of gross domestic product between 2007 and 2014.
That is a heavy burden. But, to 2050, the cost of this crisis will be no more than 5 per cent of the financial impact they face from the ageing of their citizenry. As the IMF says, “in spite of the large fiscal costs of the crisis, the major threat to long-term fiscal solvency is still represented, at least in advanced countries, by unfavourable demographic trends”.