European Economic Policy

Money can’t buy more children – and it’s time we acknowledged that. Across OECD countries, governments spend around 1.8% of GDP on family-related tax breaks, benefits, and services. In the EU-27, this rose from 1.6% in 2001 to 1.9% in 2023, with national figures ranging from 0.8% in Malta to 4.0% in Denmark. Yet despite rising support, fertility rates keep falling: Germany: 1.35 children per woman, Japan: 1.15, USA: record low of 1.6 (2024) The causes are complex—education, housing, childcare, labor markets, work-life balance, and evolving social norms all play a role. But it’s increasingly clear: higher spending alone does not lead to higher birth rates. This calls for a shift in focus. Rather than trying to incentivize births directly, policymakers might be better off ensuring equal opportunity for every child, while preparing labor markets and pension systems for a structurally older population. 📉 In the UN’s low-fertility scenario, the old-age dependency ratio in high-income countries could reach nearly 80%—posing major challenges to tax- or pay-as-you-go pension systems. Capital-funded pension models will be critical. 👥 Labor markets must also adapt. If the EU raised older worker participation to today’s Japanese levels, the workforce could grow slightly by 2041—even under low fertility trends. But by 2060, 43% of workers would be 50 or older. 🎓 Finally, education must remain a top priority. Fewer children should mean higher per-capita investment, not cuts. Education is a key lever to boost productivity and mitigate the economic effects of aging. In short, fertility decline is no longer just a demographic issue—it’s a structural challenge for economies. The real test will be how effectively we adapt. #FertilityDecline #AgingPopulation #PensionReform #LaborMarkets #HumanCapital #FamilyPolicy #Demographics #PublicFinance #Education

🔍 The EU Youth Report 2024, published by the European Commission, offers a data-rich, multidimensional view of the realities faced by young people aged 15–29 across Europe. Drawing on Eurostat, Eurobarometer, and Youth Wiki, the report explores challenges and opportunities across education, employment, digitalisation, mental health, and civic participation. Key highlights from the report 👇 📉 Youth Demographics ▪️Youth make up 16.2% of the EU population - down from 17.6% in 2013 ▪️The declining youth share raises concerns about the sustainability of social systems and intergenerational fairness 📊 Relevance: Policies must account for a shrinking working-age population and growing dependency ratios 🔗 Call to action: Anticipate labour shortages with forward-looking education and skills strategies 🗳️ Youth Participation & Trust in the EU ▪️Over 70% of young people report voting in elections ▪️High participation in volunteering and trust in EU institutions signals a strong foundation for civic engagement 🧩 Action: Invest in inclusive youth participation frameworks 📚 Education & Skills Development ▪️40% of youth completed tertiary education; early school leaving remains a concern ▪️Only 1 in 4 completed vocational pathways; participation in non-formal learning is low (12% EU average) 🛠️ VET Focus: Bulgaria, Hungary, Poland and Slovakia report higher Erasmus+ VET mobility than higher education 📈 Need: Elevate the status of VET and ensure parity of esteem with academic routes 💼 Employment, NEETs & VET ▪️10% youth unemployment, and 11.7% are NEETs (Not in Employment, Education or Training) ▪️NEETs highest in Romania, Greece, and Italy ▪️Nearly 80% of youth have done a traineeship 💡 Insight: Work-based learning, including apprenticeships and quality traineeships, is a powerful lever for youth employment 🌍 Mobility & Erasmus+ ▪️16% of youth studied, trained, or did an apprenticeship abroad ▪️Erasmus+ is well-known (50%), but financial barriers are the main obstacle to mobility 🌐 VET Mobility: In some countries, VET learner mobility outpaces higher education—highlighting VET’s international potential 🧠 Mental Health & Well-being ▪️Nearly 50% of youth report emotional distress or psychosocial challenges 🏥 Youth demand: Better mental health support systems across education and employment services 🌱 Green & Digital Skills for the Future ▪️Climate change is seen as the top global issue by youth ▪️Young people feel education has equipped them with digital skills—but gaps persist in media literacy and disinformation awareness 🌿 VET angle: Greening of vocational training curricula is key to preparing for the green transition 🧩 Concluding Message ▪️Education systems—especially VET—must be at the forefront of equipping youth with relevant, inclusive and future-proof skills ▪️Bridging gaps in mobility, mental health, and digital readiness will be essential to ensure no young person is left behind EU Employment and Skills Cedefop

We are pleased to share our new report on social mobility in Europe – a topic that is close to my heart. Social mobility isn’t just the next step in inclusion, it’s a strategic imperative for Europe’s long-term competitiveness. Today, more than one-third of Europeans encounter barriers leading to lower employment rates, less productive roles, and slower career progression compared to their peers. Ultimately, these individuals’ futures are constrained by their parents’ economic past. For example, in the exhibit below, the data shows that having a highly educated parent triples an individual’s odds of receiving a similar level of education compared to those whose parents attended only primary or lower-secondary (or middle) schools. Our research shows that by tapping into talent from lower socioeconomic backgrounds, Europe could: 🔹bridge its skills gap 🔹enhance workforce productivity 🔹boost the continent’s GDP by as much as 9 percent But turning the tide is not just a challenge for governments. Businesses have a crucial role to play in fostering a more inclusive and productive workforce - and a great deal to gain from the more dynamic economy that results. We’ve identified 21 initiatives that companies can take across the employee life cycle, with a focus on seven key areas. Read our report to learn more: https://lnkd.in/dZiJgk2a Thanks to my co-authors Ferry C. Grijpink, Marie Christine Padberg, Peter Cooper, and Tania Zulu Holt. Alongside our social mobility report, please don’t miss McKinsey.org’s free online learning program Forward. This is a great opportunity for career starters or job changers to equip themselves with practical skills to succeed in the future of work: https://lnkd.in/dZHHKhkS

The Economist is getting it half right. Indeed, ageing is quite possibly bringing havoc to social security systems across the rich World. The one forgotten aspect here is the enormous wasted capacity that is still around us and can help us deal with the challenges that come with ageing. In Italy, the NEET (not in education, employment or training) is higher than 20 percent. Only about 30 percent enter higher education. The complaint I hear from my policy colleagues is that Italy (and many other European countries) suffer a youth human capital crisis, and guess what, they don’t have children when they grow up as adults either. The elephant in the room here is the educational system. As policy makers are grappling with ageing, it would help if we start helping those who are going to deal with the millions of older people – namely the youth of today. Improving inclusion in education, make it easier and cheaper to enter higher education, bring up the skill level across the board. Unfortunately this is not sufficient: the youth of today must expect to work much longer than the current baby boomers who soon enter retirement. With a working career of 50 years, say, and a World seeing unprecedented technological change, current educational systems seem hopelessly out of date. In the future, it would make more sense if adults entered higher education three times (or more) during their working life. Who is going to pay for this? Just like pension contributions, people should perhaps also contribute to their re-training sabbatical from the day they start their working career. The political cycle, as The Economist points out, is a challenge: who wants to take on these unpopular tasks when it will end their re-election prospects? The key is that these challenges need to be taken out from the usual short-run political wrangling. Just as climate change, ageing is happening. It is a bit like when Reese in the Terminator 1 film explains to Sarah Connor what a Cyborg is: ageing cannot be bargained with, it cannot be reasoned with, nor does it feel pity or remorse, it will just keep carry on until… (I leave out the last part). In more plain language, ageing is a long term process and needs long term solutions. Now, this is not as difficult as it may seem. There are encouraging examples: Norway is now increasing the retirement age to 72. Imagine if one tried to do that in France?? But the Norwegian approach is very clever: First, talk to a demographer to get the facts, which brings broad political support, and second, increase the retirement age simply letting people choose when to retire.  IEP@BU - Institute for European Policymaking at Bocconi University Università Bocconi European Commission European Parliamentary Research Service Eurofound Population Europe Media FutuRes | Towards a Resilient Future of Europe

Last year, the EU recorded its lowest number of births ever, with only 3.67 million babies born —a sharp 5.5% decline from 2022 (read the FT article here: https://lnkd.in/dWJJ3F_T). But why is this happening? At the heart of this trend is a complex web of societal factors: economic uncertainty, delayed parenthood, and shifting gender roles. Women —who are now more integral to Europe’s workforce than ever (with 69.3% employment in 2022)— often face the so-called “motherhood penalty,” where career ambitions collide with fertility plans. In a recent paper with Costanza Giannantoni, published in the Journal of Economic Geography, we explore a critical yet often overlooked factor: the role of institutional quality. Our analysis of 216 European regions reveals that having children is significantly easier in areas with strong local governance compared to those with weaker institutions. Here’s what we found: • A 1% improvement in regional governance is associated with an 8% increase in fertility. • Regions with robust public services and family-friendly policies achieve a rare but important balance: higher female workforce participation and increased fertility rates. In contrast, in regions with weaker institutions, women are often forced to make stark trade-offs, frequently leading to sacrificing both career progression and childbearing. As Europe searches for solutions to its demographic challenges, strengthening local institutional quality and implementing equitable policies isn’t just about advancing gender equality. It’s essential for keeping our societies economically and socially vibrant. 📖 Read the full article here: https://lnkd.in/dKqDh3x4

Europe’s fastest-ageing countries also tend to have the most generous pensions and lowest retirement ages. A French retiree now spends 23 years on a pension—the longest in the OECD—while Denmark is preparing to lift its retirement age to 70 by 2040. Ageing costs are rising well beyond pensions. France, Belgium, Norway and Austria are set to spend around 30% of GDP on ageing-related costs by 2045, the most in Europe. Long-term care alone is set to climb from 1.7% to 2.6% of GDP by 2070, with southern Europe hit hardest as populations age fastest. Some countries—like Norway, backed by its sovereign wealth fund—can absorb the pressure. Others face far tougher choices. Reforms can ease the burden, but action is urgent. Linking benefits to life expectancy and adjusting retirement ages can spread the cost across generations. Delay only guarantees harsher cuts or higher taxes later. Discipline now means ageing sustainably later.

➡️ Reflections on the EU’s 2025 Taxation Report: Key Takeaways and Policy Implications. Released yesterday, the European Commission’s 2025 Annual Report on Taxation comes at a time of macroeconomic uncertainty, green transition, and demographic ageing. The report provides a deep dive into Member States’ tax systems, highlighting persistent challenges such as pension sustainability, stagnating environmental tax revenues, and tax avoidance by high-net-worth individuals. Among the key findings is the drop in the EU’s tax-to-GDP ratio to 39%, its lowest level since 2011—driven by declining revenues from property and environmental taxes, while labour taxation still accounts for over half of total revenue. Ageing populations and shrinking workforces are putting pressure on fiscal sustainability, prompting calls to shift the tax base toward more growth-friendly sources. At the policy level, the EU is advancing structural reforms such as BEFIT (harmonisation of corporate tax bases), ViDA (modernisation of VAT), and FASTER (quicker and safer tax relief for withholding taxes), aimed at boosting competitiveness, simplifying compliance, and closing tax gaps. Complementing these efforts are more than 780 projects under the Technical Support Instrument, focusing on digitalisation, compliance, and fiscal fairness. The report also scrutinises the taxation of wealth and capital income, contributing to the global debate around establishing a minimum tax for ultra-high-net-worth individuals. While some countries like Spain retain net wealth taxes, most EU Member States have repealed them, citing administrative burdens and capital flight risks. Tax gaps remain a structural concern: in 2022 alone, the EU lost an estimated €89 billion in uncollected VAT. Digitalisation, automated information exchange, and EU initiatives like FISCALIS are key to bridging these gaps. The report is not just a snapshot of EU tax systems—it is a call to redesign taxation in ways that are fairer, more efficient, and better aligned with long-term goals: competitiveness, intergenerational equity, and ecological sustainability. A timely reminder that tax policy doesn’t just raise revenue—it shapes our future. Source: European Commission (2025). Annual Report on Taxation. Directorate-General for Taxation and Customs Union. #EUTAX #Taxation #Taxreport