Germany – Europe’s economic and political powerhouse is edging closer to its biggest ever financial crisis and it will drag the UK, France and the rest of Europe down with it. That was just one of the headlines to come out of this years Elite Investor Summit which took place earlier this month. The event saw some of worlds leading financial experts including Justin Urquhart Stewart (7IM), MoneyWeek’s Tim Price and long term financial forecaster Harry Dent come under one roof for a day of financial analysis and future forecasting.
According to experts, the impending crisis for Germany will not be the fault of it’s banks, it’s big business or it’s political climate, but it’s demographics. Germany’s birth-rate has been declining for years a nd is now the lowest in the world, with just 8.2 babies born each year per 1,000 people (compare this to the UK’s 12.7). What’s worse is that the trend is still on the decline. Germany might be the production powerhouse of Europe when it comes to manufacturing, but when it comes to reproduction – they now underperform the Japanese, whose notoriously low fertility rate has long been the source of official hand-wringing. This fact alone may not seem enough to warrant such dramatic headlines, however a combination of Germany’s baby boom and bust years of the late 1950’s and early 1960’s (known as the Pillenknick) and an ever-rising life expectancy means it’s population is rapidly becoming top heavy.
And that’s a big problem. Germany has one of the highest basic state pensions in the world (£26,366 vs the UK’s £7,488) and it needs a lot of people in employment, contributing to the system to make it work. However, it’s estimated that the proportion of working-age residents in Europe’s biggest economy is will decline from 61% to 54% within the next 15 years as Germany’s baby boomers hit retirement age. That’s an exodus of 6 million people from the country’s workforce despite an expected intake of over half a million migrants per year. Look forward further to 2060 and Germany’s population is forecasted to drop from about 81 million today to as low as 68 million.
“No other industrial country is deteriorating at this speed” warned the World Economy Institute in Hamburg after completing their own study of the impending crisis earlier this year. In fact, the situation is so serious – a number of small towns in Saxony, Brandenburg and Pomerania have already begun to contemplate plans for gradual “run-off” and ultimate closure, a once unthinkable prospect.
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With this demographic tanker heading for the biggest iceberg of all time, you might expect Angela Merkel to have come up with a plan to turn the ship around. Germany’s retirement age however, was recently lowered to just 63 adding yet more strain to an already overstretched pensions and benefits system. So with the only one capable of navigating this ship through the ice field stuck down in the engine room stoking up the fire, it looks like it’s full steam ahead into one of the greatest financial disasters of all time…