Europe faces dual pressures: Trump's defence demands and aging crisis
Donald Trump's return to the White House and his push for increased defence spending are presenting new challenges for Europe. According to CNN, combined with the demographic ageing of societies and declining productivity, European welfare states are under growing financial pressure.
As CNN reported, Donald Trump's return to the White House raises Europe's concerns about the pressure on welfare states and rising defence costs. The United States, a European trading partner, may impose higher import tariffs.
According to analysts from Goldman Sachs and J.P. Morgan, this will hinder investment and economic growth in the region. Trump is also tightening demands on NATO allies, calling for defence spending to be doubled to 5% of GDP.
CNN points out that even a slight increase in defence spending could significantly impact already strained public finances that must meet other growing demands.
Europe under demographic and financial pressure
Rising defence costs are not the only problem for Europe. The Old Continent is also struggling with a demographic "tsunami"—aging societies that generate increasing financial burdens.
In Germany, Europe's largest economy, maintaining the current level of pension benefits requires GDP growth of at least 2% annually, which seems unrealistic in light of recent economic downturns, argues Deutsche Bank's CEO, Christian Sewing.
According to estimates by the American company McKinsey, the anticipated decline in the number of working-age people relative to the total population in Western Europe could lead to a significant reduction in GDP growth per capita—on average by CAD 13,600 annually over the next 25 years, it reads.
The decreasing share of the working-age population and the slowdown in productivity growth further exacerbate the situation. McKinsey estimates that by 2050, this decline could reduce the annual GDP growth per capita in Western Europe by CAD 13,600.
