LUXEMBOURG, March 4 - Europe’s familiar growth formula - one that relied for decades on a rising number of workers - is no longer a dependable path to rising output, the chair of euro zone finance ministers said on Wednesday.
Addressing delegates at a conference organised by the European Investment Bank, Kyriakos Pierrakakis outlined how demographic trends will reshape the continent’s economic outlook. He said strong demographic headwinds mean that, by 2040, the workforce now roughly 200 million people could start shrinking by nearly two million people a year.
That changing labour picture, Pierrakakis argued, alters the arithmetic of growth. "That matters because it changes the equation. Growth can no longer rely on expanding labour supply. It must come from higher productivity. And higher productivity comes from innovation, investment and efficient capital allocation," he said.
He added that the growth model which underpinned European prosperity for decades "is reaching its limits." Against that backdrop, Pierrakakis said the strategic challenge for the European Union is to mobilise capital more effectively to finance innovation and scale.
"That is the only lever that can raise productivity, increase incomes, strengthen strategic autonomy and build resilience," he said.
Pierrakakis and other speakers at the conference framed the task as one of redirecting existing household and institutional savings into ventures that can lift productivity. The idea is to take a portion of the roughly 10-11 trillion euros that Europeans hold in bank deposits and deploy those funds more productively to support the growth of innovative firms.
Efforts to create a single market for capital across the 27-nation bloc - so that capital can flow more freely to where it will generate higher returns - have progressed slowly, Pierrakakis noted, hindered by entrenched national interests and political differences. However, he said geopolitical shifts over the past 12 months have given the work a renewed urgency.
The remarks underline a policy pivot: with an expanding labour force no longer a given, advancing productivity through investment and better capital allocation becomes central to sustaining income growth and resilience. ($1 = 0.8596 euros)
Summary: Europe faces a turning point as demographic decline limits labour-driven growth, forcing policymakers to focus on productivity gains through innovation, investment and the mobilisation of roughly 10-11 trillion euros in bank deposits. Slow capital markets integration and political obstacles complicate the effort, though recent geopolitical developments have increased its urgency.