Regional disparities in Europe

From the southern coast of Sicily to the eastern borders of North Karelia in Finland, Europe is riddled with pockets of regional population and economic decline. Even our own capital city, Valletta, has been a victim of years of depopulation which left it in a degenerative demographic state.

In the conditions of accelerating ageing, the fulcrum of public spending would have to move from productive projects to financing needs of an older population

The 2013 Demography Forum, a biennial gathering of European demographers as well as experts from outside the EU, entitled Investing in Europe’s Demographic Future, took place on May 6 and 7 in Brussels. The forum dedicated one of the two morning sessions to the topic of regional inequalities in Europe, with a focus on demographic and economic decline.

Similarly to financial capital, regions need quality human capital in order to be able to perform well. This primarily means being able to create their own demographic potential, to maintain and retain it, and finally to generate power to attract migrant human capital when necessary.

In the situation of regional development highs and lows, which trend holds primacy – demographic or economic decline? In this interplay nothing happens in isolation.

It is through the rules of economic gains and the acquired demographic freedoms, such as postponement of first marriage, voluntary childlessness, spacing of births and ease of labour force mobility, that a drive for profit coupled with population ageing has led to a state where both human and economic boosts are now needed in some EU regions. Tackling the problem of regional disparities does not mean in any way stalling the process of regional competitiveness or seeking reversibility of demographic transition.

The capacity of specific regions to maintain their attractiveness to human and financial capital should be fostered across the EU. In addition, the efforts to increase the quality of labour force skills and foster participation at the labour market are essential for economic growth in these regions.

According to the World Bank Report, issue 26 of January 2013, the less wealthy EU11 member states, comprising the former communist countries and Croatia (due to join the EU in July 2013), expect a faster process of ageing than their wealthier counterparts (the remaining EU17 member states).

Higher savings of an ageing population could mean investment and capital deepening only to the point when retired persons start using their savings and when capital accumulation starts to decline. Also, in the conditions of accelerating ageing, the fulcrum of public spending would have to move from productive projects to financing needs of an older population. Increased public expenditure on health and pensions, and decline in productivity due to lack of a young and more innovation-prone labour force, could create concerns over negative economic growth. In the scenario of rapid ageing the demand for goods and services could become highly age-specific, expanding to health services and long-term care. Unless the EU member states that are exposed to a faster process of ageing undertake serious revision of their labour market policies and in particular activation policies, the World Bank projections suggest they will experience labour force decline of around 35 per cent by 2050.

The report finds the impact of human capital accumulation on economic growth having the highest benefit for a balanced development within the EU. The World Bank concludes further that each percentage point increase in the share of a young labour force, defined as aged 15-29, with tertiary education, boosts income growth by 0.8 per cent. Fostering a snowball effect of education and skills among the incoming cohorts of young persons, in comparison to those already in employment, creates particularly fertile ground for economic growth. However, due to population ageing a negative correlation between old-age dependency ratio and investment share is clearly discernible in the EU11 member states, which are poised for a higher decline in investment shares by year 2050 than the remaining EU 17 member states.

For the EU as a whole this means further lack of progress on the income convergence front.

There are no universal solutions for regional development. There will always be threats of stagnation above critical levels for particular regions and member states.

The idea of regional equilibrium should be applied only to the extent that it does not choke the superior potentials some regions are able to exploit.

The 2013 Demography Forum concluded that continuous monitoring, decisive action facilitated by the use of ESF and ERDF cohesion instruments and a long-term vision both at national and EU levels are indispensable to facilitate improved local and regional growth in the EU.

Maja Miljanic Brinkworth chaired the May 7, 2013 Demography Forum.