According to estimates by British economist Angus Maddison, from the year 1000 to 1820, Europe (excluding Russia) comprised a small but constant part of both the global population (slightly above 15%) and global GDP (roughly 20%). By 1900, Europe’s contribution to the latter had jumped to over 30%, while its contribution to the former remained below 20%. In 2015 Europe accounted for 8.1% of the global population and almost a quarter of global GDP, and by 2050 these ratios are likely to decline to 5.9% and less than 10% respectively.
Decline of the relative importance of Europe
There are three reasons why this trend toward a “less important” Europe is expected to continue.
First, according to the UN’s median population projection, Europe (excluding Russia) will lose more than 15 million people (roughly the current population of Holland) between 2015 and 2050, while global population should increase during the same period by 2.4 billion.
Second, the European working-age population will decline at an even faster pace. According to the UN, the ratio of working people aged 15–64 to the overall population will decline from 67% to 56% between 2015 and 2050. This will weigh on European growth. Upward shifts in the retirement age could help, but will not eliminate the issue.
Third, the emerging markets growth story isn’t broken. Even under very conservative assumptions, both India and China should significantly surpass the EU’s GDP (measured at PPP). Moreover, countries like Mexico, Brazil or Indonesia will have significantly higher GDP than Germany, the UK or France.
The European portion of global GDP (at PPP) could fall to less than 15% by 2025 and less than 10% by 2050. Moreover, the gap between the US and the EU will continue to widen. By 2050, the US could have a GDP that is 25–30% higher than that of the EU. The US will add another 60 million people (roughly Italy’s current population) to its population. That said, in terms of GDP per capita, Europeans will remain among the richest on the planet.
Shifts within Europe
Along with Europe’s loss of relative importance on the world stage comes a demographic power shift within the continent itself. According to UN projections, the UK’s population could increase by up to 10 million to a projected 75 million people in 2050, while France’s is expected to climb by 7 million (to 71 million). At the same time, Germany is forecast to lose 6 million (to 74 million), thereby surrendering its status as the most populous European nation. Italy is expected to shrink by 4 million (to 56 million), and Spain by 1 million (to 45 million).
For most European countries, GDP will move broadly in sync with population. This means that while the economic center of gravity of the world economy is moving south and east, the center for Europe will move in opposite directions: north and west.
The projected decline in Europe’s population and its share of the world economy is already acting as a driving force for the integration impetus of the EU as fundamental reforms are needed to improve the low growth prospects, in particular in the Eurozone. How- ever, generational changes since World War II mean that Europeans are not prepared to integrate at any cost. The willingness of most Eurozone leaders to let Cyprus go in 2013 or Greece in 2015 "if necessary" is a case in point.
This will likely mean that integration will be a protracted and uneven process, especially considering the conflicts of interests arising from debtor-creditor positions among Eurozone countries and the political hurdles for changing the Treaty of the European Union. As recent history shows, it will probably take crises to produce some of the changes. Further debt issues should be considered as likely on the path to an integrated Eurozone: a future global shock could hit Europe hard given exhausted debt capacities in many places, already high unemployment, and the need for house price adjustments in some countries.
It will likely prove difficult for immigration to fix the problem, given that subdued economic growth might increase political aversion to higher migration. Against this backdrop, the five leaders of the European institutions (ECB, Eurogroup, European Parliament, EU Commission and European Council) laid out, in their five presidents’ report, their vision on the way forward as the focus shifts from expansion to consolidation. This entails the completion of the Banking Union, the Capital Markets Union, the Fiscal Union, and the Political Union by 2025 to reap the full benefits of an integrated Eurozone.
This vision of Europe would mean a much more robust and solid region, one that could even attract further states into the Eurozone. Achieving this level of integration will undoubtedly be challenging, but will be essential to ensure the Eurozone remains an important global player.