Trump's defense demands strain Europe's aging economies
Donald Trump's return to the White House and his push to increase defense spending present Europe with new challenges. Alongside the demographic aging of societies and declining productivity, European welfare states face increasing financial pressure, according to CNN.
CNN reports that Trump's return to the White House heightens Europe's worries about pressures on welfare states and rising defense costs. The United States, a key trading partner for Europe, may impose higher import tariffs.
Analysts from Goldman Sachs and J.P. Morgan indicate that this could hinder investment and economic growth in the region. Trump is also intensifying demands on NATO allies, urging them to double their defense spending to 5% of GDP.
CNN notes that even a slight increase in defense spending could significantly impact already strained public finances, which are also required to address other growing demands.
Europe under demographic and financial pressure
Rising defense costs are not the only challenges facing Europe. The continent is also grappling with a demographic "tsunami"—aging populations that create an increasing financial burden.
In Germany, Europe's largest economy, maintaining the current level of pension benefits requires GDP growth of at least 2% annually, which seems unrealistic given recent economic downturns, argues Deutsche Bank CEO Christian Sewing.
According to estimates by American firm 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 $10,000 annually over the next 25 years.
The decreasing share of the working-age population, coupled with a slowdown in productivity growth, further exacerbates the situation. McKinsey estimates that by 2050, this decline could reduce the annual GDP growth per capita in Western Europe by $10,000.
