The bear market takes its toll

The Netherlands is one of the few countries in Europe that has a substantial amount of pension assets in the various funded schemes. Still there is a substantial dependence on a relatively generous pay-as-you-go state pension system which will become a problem at some point. But at least the situation isn't as bad as it is in France or Germany. But while capital-funded pension systems at least try to address the issue, they are not without risk. Investment risks tend to average out over the long term, but in the short term pension funds are exposed to the vagaries of the markets.

We're now witnessing the biggest bear market since the 1930's. The current downturn in equities has been longer and deeper than the big bear of 1973-74, and pension funds around the world have been suffering as a result. The biggest Dutch pension fund ABP has just announced that its funding ratio fell below 100% last year. With around $140 billion in assets, the ABP is one of the largest pension funds in the world. (CalPERS used to be the biggest, but has fallen back to just $131 billion in assets.) Getting back to a fully funded status is going to require large premium increases for the participants. Premiums may have to rise by 25% in the coming year in order to regain a 100% funding level. The funding level is the ratio of present values of assets to liabilities of the pension fund. So an underfunded status of 99% is nothing to panic about as it is not causing a cash flow problem. Rather it means that if the fund were closed today (no more contributions, no more building of pension rights but still paying out the built-up rights) the assets would not cover all the liabilities. You do need to fix the underfunding, but that is something that can be done over the course of a few years. The short-term increase in premiums that the active members of the fund will have to pay remain painful nonetheless.

There is no magic bullet in creating old-age provisions. A capital funded pension system is still the best alternative there is because you actually do build up capital as you go along. The downside risk is that things will fall apart and that we'll get a worldwide economic collapse. But if that happens, a state-run pay-as-you-go system isn't going to be better off either.

Pension reform in France

Last week massive strikes paralyzed France. The labor unions still have a powerful hold on the country, and whenever they don't like what the government is doing, they shut down the country. Amazingly, strikers in France have enjoyed widespread support in the past despite the disruption that they've caused. And even today the strikers still seem to be able to count on sympathy from the suffering public. Some people are getting fed up, as mentioned in this story, but the disenchantment with the unions has not reached the level yet where the government would feel comfortable in taking them on. The same story also quotes a student saying that "people must strike to defend their interests, it's part of our culture." It's a culture of infantile entitlement, the countrywide equivalent of a brat stamping his foot and demaning that he get his ice cream now. This culture has slowly beend draining the productive resources of the French economy to the point where it is now in a ramshackle condition. It's not as bad as Germany's predicament, but the long-term secular growth rate has been declining, and even that trend rate of growth has not been attained in the current cyclical downturn. In other words, the French economy is not doing very well, but it's not in a state of imminent collapse.

The biggest beneficiaries of the tax-happy French governments of the past can be found in the traditionally least productive sector, the civil servants. This is also where the labor unions are strongest. French civil servants lead an easy life, with excellent job protection and lavish retirement benefits. But as the economy struggles and public finances are in trouble, the government is trying to look for ways of cutting back on spending. Add to that the demographic problems of an aging population and action is becoming urgently required. France is highly vulnerable to aging as it has adverse demographics, a very generous public pension system an no capital-funded pension provision at all. (France actually has more favorable demographics than many other European countries, but its lack of an affordable and funded pension structure account for its aging vulnerabilty). Now the government is trying to reform the system in order to stave off a financial catastrophe in the coming decade.

Demographics are relentless. Forecasting 50 years ahead is a tricky exercise, but you do know with a fair amount of certainty what's going to happen in the next 20 years. Even if there's a sudden upturn in birth rates in the next five years, the benefits are not going to flow into the labor force until much later. And looking ahead by 20 years, France has a serious problem. Its entire pension system is a pay-as-you-go system. That means that current retirement benefits are paid out of current taxation, so even though contributions are labeled as "social security," they're not actually your contributions, but they're used to pay someone else. This is no different from Social Security in the United States, but at least the US has a wide range of funded supplementary pension provisions. Pay-as-you-go systems are state-run Ponzi schemes, and with a declining birth rate and an increasing dependency ratio, the end for the system is in sight. Either taxes will have to go up dramatically, or pension benefits will have to be cut.

The big strikes that paralyzed France revolve only around a tiny portion of the wider pensions problem. Specifically, the government wants to bring civil servants into line with private employees in requiring them to pay contributions for 40 years in order to reap the largest benefit from the national Ponzi scheme. Currently they only have to contribute for 37.5 years, so we're talking about an extension of 2.5 years here. This will make a difference, but it hardly addresses the root of the problem, which is a lack of funded pensions. Transitioning from a pay-as-you-go to a capital funded system is not cheap either, because you have continue to pay pensions for a while under the old system while also contributing to the new funded system. But there are ways around that, so the obstacle is not insurmountable.

The big problem for France is that if even such a small change in the pension system is causing so much protest, then a real reform that would institute funded pensions is very far off indeed. But time is running out, as the dependency ratio in France will start to increase substantially over the next five years and keep rising as far as projections go. It's already too late for a relatively painless reform, and the longer they wait, the bigger the problem is going to be.

What's making matters worse is the poor state of the economy, brought on by decades of dirigisme, the stultifying French brand of state-directed pseudo-capitalism. The dependency ratio is already higher than it would have been had the economy been performing well, because those in work have to support not only the elderly but also the unemployed. "Young, French and Jobless," as the Australian Financial Review put it:

For Alexandra Duprey, a member of France's "Generation Aix," unemployment is a growing crisis.

"We're afraid for the future," says the 23-year-old student at the University of Aix-Marseille. She and hundreds like her were at a government-sponsored seminar last week in this coastal city aimed at encouraging young people to become entrepreneurs.

Ironically, these should be giddy days for Duprey and her peers. The number of French workers retiring each year should rise by about 250,000 by 2006 to 750,000. But far from being plied with offers of work, they can only watch helplessly as the sky-high rate of youth unemployment climbs ever higher. Youth unemployment, 20.9 per cent at the end of 2001, rose to 21.7 per cent last year, among the highest in the euro zone and well above the common-currency region's 16.3 per cent average for that age.

Meanwhile, older French workers fare much better. For those between 25 and 49, unemployment was 8.4 per cent at the end of 2002, up 0.2 percentage point from 2001. For those over 50 it was 6.2 per cent. Still, French President Jacques Chirac last week called for a "national mobilisation" for employment, and asked for "specific measures to favour employment for those over 50".

Not only are young people out of work, the labor unions and the older generation are making sure that they stay that way. Chirac's response as quoted above is also symptomatic of the confused policy response to the problems, and betrays a fundamental lack of understanding of how the economy works, and more specifically, how real jobs are created, the kinds of jobs that actually help the economy grow and generate a profit. You can't pull an economy out of a slump by government decree, national mobilization or specific measures to favor employment. It is much more likely to create further distortions in the economy.

The French government sees the liquidity problem of the current system coming, and the current reform is aimed at mitigating the cash crunch. But it still does not address the fundamental pensions problem in France, which is the pay-as-you-go Ponzi scheme that masquerades as a pension system.

Global Aging

I have blogged before about the problems that demographics pose for European countries. Within Europe, the only three countries that have a supplementary funded pension system are the United Kingdom, the Netherlands and Switzerland. All the others are in deep trouble one way or the other. But that's just looking at the pensions side. I only just discovered The Aging Vulnerability Index (pdf) published as part of the Center for Strategic and International Studies' Global Aging Initiative. The aim of the Aging Vulnerability Index is to measure how vulnerable countries are to the problem of an aging population. The index consists of four main areas of investigation, in the words of the authors:

• public-burden indicators, which track the sheer magnitude of the public spending burden
• fiscal-room indicators, which track each country?s ability to accommodate the growth in old-age benefits via higher taxes, cuts in other spending, or public borrowing
• benefit-dependence indicators, which track how dependent the elderly are on public benefits and thus how politically difficult it may be to reduce their generosity
• elder-affluence indicators, which track the relative affluence of the old versus the young?another trend that could critically affect the future politics of benefit reform

This analysis goes a step beyond looking at the demographics of each countries, and actually tries to calculate how expensive the pension commitments are. Modeling future developments, especially as far ahead as 2040 is fraught with difficulties. I think we should look at the results not so much as predictions of what will happen, but a what-if analysis of what might happen if no major changes occur. That's the key point to bear in mind in all of this, but it is a valid starting point as doing nothing is the comfortable default.

There are two sides to this kind of modeling: the liabilities and the economic development. Modeling the liabilities is usually very complex to do, especially if you want to integrate the finer details of current pension systems into the mix. You need a demographic model, with birth rate assumptions and mortality tables. Then, once you have the population development, you need to calculate how much in pension rights everyone gets. If it were an analysis of a pension fund, you'd also have to calculate the present value of these rights. So while all of this is very complex, this is something that can be done quite accurately in general. It's just a lot of painstaking work. In the kinds of broad-brush analysis like this one, you can make simplifying assumptions which reduce the amount of work considerably. It's the economic development side that's usually easier to understand in its parameters, but also much more contentious. The impact of taking a slightly higher GDP growth rate on overall results is enormous if you look at periods as long as 40 years. So again I come back to my earlier point: don't look at this as a forecast, but more as a what-if.

The results of the study are somewhat surprising. The report groups the countries into three tiers: Low, Medium and High vulnerability countries.

Rank	Country	Index Score
1	Australia	-1
2	United Kingdom	+7
3	United States	+18
4	Canada	+42
5	Sweden	+48
6	Japan	+50
7	Germany	+52
8	Netherlands	+62
9	Belgium	+63
10	France	+83
11	Italy	+84
12	Spain	+93

The scores are scaled such that 50 is the average, and 0 and 100 represent respectively scores of minus and plus one standard deviation from the average in each score.

The trio of Australia, UK and US are the Low Vulnerability countries, which have their house in reasonable order and can face the future with some confidence. The Medium tier countries are Canada through Belgium, who all face substantial challenges. Lastly, the High Vulnerability countries are France, Italy and Spain, who will end up in deep trouble unless they take drastic action. But the scope for taking action is part of the analysis, which in part has pushed these countries to the bottom of the list. How likely is real reform in France? Not very.

The only country that can lay claim to having sorted out its pensions problem is Australia. Although it has favorable demographics to help, the key to its excellent score is the Superannuation Guarantee that was introduced in the early 1990's. This is a mandatory, private and funded retirement account, which by 2040 will reach 11% of GDP. With the "Super" contributing more and more over time to Australians' pensions, the current pay-as-you-go system is being reduced. The privatization of retirement provision is going to be a boon to the Australian economy and Australians themselves. The key feature is that the system is mandatory, so it does resemble a tax since you have no choice in paying it or not. But it's not really a tax since the money is still yours, except it's being put in an investment account, and you'll be using your own money for your own old age. This is a necessary feature if the government is to provide a fallback guarantee. Once you have a safety net, then the temptation will be great for some to skip their contributions entirely in the knowledge that the state will bail them out. The socialization of these costs necessitates an act of compulsion for the system to work.

The UK and US are doing relatively well, as both have supplementary funded pensions systems. The biggest problem for the US is the large increase in socialized heath care costs for the elderly in the form of Medicare. Perhaps surprisingly, it is Sweden that is the highest-scoring European country. Sweden is best known for its gargantuan public sector and high taxes, but on the pension front they are doing something right. They've set up a number of nationwide funded pensions systems (known as the AP Funds, numbered 1 to 5), and Swedes can decide to which they want to contribute. If they don't want to make a choice, the government does it for them. Still, the situation in Sweden is still far less favorable than in either of the top three countries The reason Japan scores so well (relatively) is simply because its pension system is extremely stingy.

The Netherlands scores poorly, coming in at 8th place with a score of 62. Given its large funded supplementary pension system, this comes as a bit of a surprise. The report authors explain it as follows (page 29):

its public pension benefits are so generous, its retirement age so early, and its family ties so weak that elders in the Netherlands are left just as vulnerable?and dependent on public benefits?as elsewhere.

The situation in France, Italy and Spain is pretty serious. Poor demographics, very generous public pension systems, no funded pensions at all and the prospects for reform are remote.

The conclusions are clear. Sticking with the current pay-as-you-go systems is going to cause very serious problems in many countries. Remember that the scores for the countries also include the ability to implement reforms. This means for Medium Vulnerability countries that doing nothing is not an option. For High Vulnerability countries, taking action is urgently required. Australia's Superannuation Guarantee is a good starting point for other countries to follow. The most obvious candidate here is Social Security in the US, which is long overdue a change to a funded system from its current pay-as-you-go format.

Europe's dismal future

One of the subjects I have been mulling over for a blog entry for some time has hit the blogosphere: the increasingly fraught relationship between Europe and the US. There's the article by Steven den Beste, and the follow-up by Eric Raymond. Both were touched off by this must-read article. Regular readers of this blog will know that I am not exactly optimistic on the future of Europe. The economic gap between Europe and the US is widening simply because of the economic structures that have been put in place. These discourage investment, risk taking and hard work, while at the same time they provide an excellent and cozy resting place for those who want to live more or less comfortably on government handouts. But the demographics of Europe make the situation even worse. Not only are European economies not capable of generating endogenous growth, the changing age distribution of the population is going to lead to major dislocations within the next decade. Unfunded pension systems are a financial catastrophe waiting to happen, and averting disaster is becoming ever more expensive to do. This problem also exists in the United States, but to a far lesser extent. For one, immigration is keeping the age distribution more favorable (immigrants tend to be young), while many more Americans have capital-funded pensions. The only countries in Europe that have comparable funded pension coverage are the UK, the Netherlands and Switzerland. All other face a huge black hole of unfunded pension liabilities that in themselves could cause serious damage to the economy. The pay-as-you-go systems that are now in place will become too expensive to fund from taxation. This problem will also have to be faced by America's great pyramid scheme, Social Security. The relative size of the problem is still far smaller than in Europe.

America's solution to its demographic problem is not available to Europe for political reasons. Unemployment is high already, and the current immigrant population is poorly assimilated and generally a drag on the economy rather than a boost to it. To put things into perspective: America's unemployment rate is just below 6% coming out of a recession, while the recent cyclical low in Europe-wide unemployment was around 8% (and this includes some low unemployment countries such as the Netherlands and Ireland). While Europe has not been able to provide jobs to its stagnant population, the US economy has had essentially full employment while at the same time absorbing huge numbers of immigrants, both legal and illegal. But on virtually every aspect of economic performance the US is beating Europe, and it's been getting worse from the European point of view. In 1981, Europeans worked on average around 1750 hours a year, and Americans about 1820. By 2001, the American is still working about 1820 hours a year, while the average European is down to 1550. The huge improvement in US productivity, which has not been mirrored in Europe at all, has meant that even in the areas in which Europe used to have an advantage, the situation is now reversed. Real GDP per hour worked is increasing at a faster pace in the US than it is in Europe.

Steven den Beste spends much of his article talking about the brain drain from Europe to the US, and the relative paucity of high-tech companies here. A big part of the problem is the lack of entrepreneurial spirit, which the socialist welfare state sucks out of all but the most enterprising soul. It also reminds me a joke a German friend of mine (now living in the US) told me (except when he told it, it was funny): if Steve Jobs and Steve Wozniak had been Germans, they would never been able to build a big successful company (Apple), because running a business in a garage is illegal in Germany. It does not meet the regulatory requirements for work-spaces (Thou Shalt Have Daylight), and besides, incorporating is an amazing bureaucratic hassle that takes forever. Or how would brilliant minds (well, Woz's anyway) have fared at a big European company? By now, they might have done all sorts of brilliant things for the company, and risen to the ranks of middle-management making $60,000 a year. Then again, since they were college drop-outs, they would not have been hired in the first place. Actual achievement is not the criterion; the right papers are.

In listing the European companies that den Beste thinks are worthy of being called high-tech, he mentions amongst other Siemens and Philips. Now, it is true that both these companies have good research staff and have produced some interesting advances in technology. However, as companies, they're not doing well at all. Siemens is a GE-wannabe, producing everything from light bulbs to nuclear reactors. Its financial performance has long been a blot on the German industrial landscape. (Whether GE's performance is as good as the myth would make it seem is a different matter. GE Capital is a large and opaque part of GE's overall balance sheet.) Philips is somewhat similar, although it's one of those companies that has been trying to find the right reorganization to really get it going. It too is a conglomerate; Philips originally started as a light bulb producer and then branched out. Everybody agrees there's a lot of potential in Philips; it just somehow seems it never gets realized. So while their research may be top-notch, the companies themselves are not. This is partly due to poor management, but to even greater degree it's also due to the fact that management's hands are tied by Europe's "social" legislation that makes firing people difficult. Closing inefficient parts of the business should be a management decision, but in Europe, it's a socialized decision in which the labor unions have considerable say. And the cost of closing down an inefficient factory or division can often exceed the drag that it poses on the bottom line. In fact, closing a marginally profitable factory is seen as an act of evil; it makes money, does it not? Never mind that the return on equity is far below cost of capital, and that having to drag these underperforming elements along hurts the company in the long term. Still, the process of moving companies abroad is continuing. At the current rate, most of the productive assets of big European companies will have been moved outside of western Europe in ten or twenty years' time, just like Sweden has been losing productive assets to lower-tax countries elsewhere in Europe.

Den Beste also mentions the large numbers of Nobel laureates (in the sciences) who live and work in the US rather than in Europe. I was in Italy when the physics nobel prize was announced, and the newspapers were full of stories about Riccardo Giacconi, an Italian who emigrated to the US after getting his degree, and who's been an American citizen since 1977. I only had time to read two newspapers, the Corriere della Sera and Il Sole 24 Ore. Both carried soul-searching editorials asking the question why. Why does Italy not have scientists who stay in Italy and win Nobel prizes? In the interview with the Corriere della Sera, I remember how Giacconi explained it (I can't find the interview online, alas). His advisor told him: Go West. He was a brilliant and ambitious man, and his advisor told him that if he wants to fulfill his potential, he has to go to a place that allows him to do that. And that place was the US.

All of this is well and good, but it's all descriptive and provides for no answers. There are two questions:

1) how can Europe escape from its trap?
2) what should be done about US-European relations?

Answer to question 1 is simple in the abstract: unshackle the economy, let inefficient companies die, encourage risk-taking. In short, make Europe more like the US. That's where the abstract part ends, because that's not going to happen. At least, it's not going to happen fast enough. Compared the European economies now and 10 or 20 years ago, there is considerable progress on liberalization and privatization. The job needs to be carried much further, without being undermined by statist ruses such as "tax harmonization" or "social protection." Moving to a more efficient economic structure ultimately can only be done with the consent of the European electorate, and there's pain involved. Voters don't like pain, not unless the pain of not doing anything is greater. We are nowhere near that point yet. Although the pain threshold for Europeans is likely to be lower than for the Japanese, the situation will have to deteriorate further before the electorate is ready to accept radical economic surgery. The problem is that time is running out. By 2010, the demographics in countries like Germany will be tipping into the danger zone.

The second question is much harder to resolve. It pains me greatly to see this upsurge of anti-American sentiment washing over the continent, so soon after the end of the cold war which was won for us by America. Yet I fear I must agree with Zinsmeister's analysis that Europe and America are growing apart. This is actually more important from a European point of view than an American, as Europe is sliding into irrelevance, so the tension between the US and Europe will be of ever less important over time. But as America's position relative to Europe will strengthen, Europe will have the choice of either being friendly with the most powerful country in the world, or whether it will make life difficult for itself by antagonizing the US. The process of accepting the reality of European decline will probably tend to the latter option; countries who've lost their empires have seldom taken it well. Although Europe is not losing an empire, it will be losing its pre-eminent position as the center of civilization. Europe will become Greece: a place that once upon a time had a sparkling civilization, but whose vestiges are only found in museums now. Worse, because it did have that contribution to the world all those centuries ago, it will feel entitled to be respected for that. And when that respect (and its attendant freebies) are not forthcoming, it will add further to the psychopathology that's poisoning the mind. Can you say "victim complex?"

The accumulated wealth of Europe will keep it muddling along for many decades yet. I also agree with Eric Raymond's conclusion that the situation in Europe could turn very nasty indeed if the economy collapses and ethnic tensions burst into flame. The first signs are already upon us.

None of this makes me feel better about living here, but I do not feel an immediate urgency to leave. There's still time, and my situation is not so desperate that I have to pack up and leave immediately. It's just a matter of finding the right job and I am out of here.

Demographics, Europe and immigration

I had forgotten how slow dial-up modems are. Does anybody really still use them? The internet in its current form is painfully slow on dial-up. That cable modem at home has really spoiled me, although I usually think it's still too slow. The transatlantic latency is one of the problems. If I'm lucky, I get ping times of around 90 ms to the east coast. If I ever feel sufficiently nerdy, I'll calculate the theoretical minimum latency for transatlantic connections.

As I mentioned in my previous blog about Rome, the Pope went to speak to the Italian parliament for the first time since the Italian state was founded. The problem is that the Popes used to rule much of Italy, and the founding of the unitary state of Italy in the 19th century took away the last bit of Papal sovereignty over what are now Italian lands. The relationship between the Popes and Italy has thus been strained with many Italians being suspicious of Papal ambitions despite the Roman Catholicism that remains widespread in the country. The Pope spoke on many issues, but one thing that struck me were his comments exhorting Italians to have more children. The birth rate in Italy is now substantially below replacement rate, with Italian women giving birth to just 1.2 children on average. To keep the population stable, the birth rate has to be just a smidgen over 2 children per woman.

This is not a problem unique to Italy. Most of the countries in the developed world are faced with declining birth rates too. The most spectacular case is of course Japan, where the population has already peaked and is projected to decline by 2050 to the same level it was in 1950. Within Europe, the worst demographics are in Italy, Spain and Germany, but virtually all countries on the European continent share in this. Aside from the social implications of a declining population, the economic consequences are far-reaching too. The economy can be expected to grow roughly in line with the population. If the population increases at a 1% per annum pace, then the economy should grow at the same pace on average. More people need to buy more food,. consume more services, buy more houses. Of course, this is a huge oversimplification. The first requirement is that you need to have an economic structure that can actually provide this kind of growth.

This is the first time in history that the human race has voluntarily limited its own growth. As prosperity expands around the globe, we can fully expect the currently underdeveloped economies to join this trend too. Sometime in the next century or two, the world population will stabilize or perhaps even start to decline. But the reality of this new trend will first be faced in Japan and Western Europe. The demographics of the United States are pointing slower growth were it not for immigration. Since this is a new situation, there is no precedent for finding an economic structure that can provide sufficient prosperity for the entire population. Until now, the increasing numbers of young people have subsidized the old. This is no longer sustainable since there simply aren't enough young people anymore.

To maintain positive economic growth in an environment of declining population, the shortfall will have to be made up by increased productivity. Adding more value per hour worked will have to counteract the demographic headwind. The answer lies in technology, and the more technology-friendly and innovation-friendly an economy is, the better it will fare.

But there is one big catch: the transition from an expanding population to a constant or even shrinking one is going to be tough. I alluded to the problem above: there aren't enough young people to subsidize the old. And the old have not saved enough money to provide for their own retirement. The state pension systems work on a pay-as-you-go basis. This means that the current tax payers are paying the retirement benefits of the current pensioners. This works fine with an expanding population, but with demographics it's no longer affordable. So what you need a funded pension system, in which the people save for their own retirement. But moving to a funded pension system is expensive and takes a long time. It's expensive because you still have to pay for current pensioners and at the same time you have to build your own pension. So it's a double pension payment. Even in countries that have a fairly well-established funded pensions systems, such as Great Britain and the Netherlands, the pensioners still depend on the extra money that comes from the state's pay-as-you-go system. In other countries, such as Germany, France and Italy, the problem is far worse because funded pensions are rare there.

There are a few options for fixing this. The intergenerational transfer payments have to be revised. You can simply tell the current tax payers that they?re out of the luck and need to pay more. Raising taxes is not the most popular of things to do as Schröder is finding out. Alternatively, you could tell the pensioners that they're going to get less money. That may not be overly popular either. Raising the retirement age will mitigate the problem as well. A combination of all three is most likely.

There is another option, and that is immigration. In fact, for Europe, it's probably the only option out of its demographic trap. Europe needs more young people to pay for its pensioners and start building a funded pension system, because paying for all of that with the currently available resources is going to be prohibitively expensive. So Europe desperately need more immigrants. And that's not going to be easy given the experience with the last big wave of immigrants from North Africa and Turkey. As I have written on this blog on previous occasions, they tend to be poorly integrated into society, and often are in fact openly hostile to the liberal democratic host-society. The past experience with immigration in Europe is indeed a bad one given the problems that the immigrants have caused.

Even that is not the whole part of the story. The overregulated and overtaxed European economies have not been able to sustain any endogenous growth. The rigid labor markets have led to sky-high unemployment. And of course, immigrants get blamed for these problems as well, which would exist even in the absence of any immigration. In many countries undifferentiated immigrant-bashing has become politically advantageous. It neatly deflects from the real problems underlying the economy and puts the blame on a clearly identifiable group. This will only go away if the European economies can liberate themselves from the state-controlled past in order to generate economic growth. But that is going to be hard to do with the large costs of the intergenerational wealth transfers hanging over them. And the problem will get worse the longer they wait. So Europe needs immigrants to solve its demographically induced economic problems, but it can't do that until it escapes from its self-inflicted economic straitjacket.