Opinion
By Yiannos Stavrinides
Europe is aging, and so are Greece and Cyprus. In all three cases, the average age of the population is rising while birth rates remain below replacement levels. As a result, all three will see their populations shrink.
By 2100, Europe's population is expected to fall below 400 million, a decline of 12 percent from current levels. Even more troubling is the projected age breakdown. By the end of the century, 17 percent of the population will be between 0 and 19 years old, 50 percent will be between 20 and 64, and 33 percent will be over 65.
While comparable projections are not available for Greece and Cyprus, what we do know is that by 2100 roughly one-third of their populations will be of retirement age. Life expectancy is expected to reach 94 years for women and 90 years for men.
To understand the scale of the challenge, consider that today there are four workers for every retiree. In less than 35 years, by 2060, that figure is expected to drop to two. By 2100, it will fall further to just 1.5. The consequences will include weaker social cohesion, growing pressure on state security, and the gradual erosion of social insurance systems.
Unfortunately, against this bleak backdrop, the government plans to introduce a pension reform in 2027 that runs counter to demographic realities. According to the minister responsible, the main objective of the initiative will be to reduce the permanent pension penalty for early retirement, which currently stands at 12 percent and could be lowered to 8 percent.
Demographic trends are also expected to affect the banking sector because of its close connection to economic performance in Cyprus and Greece. Recent sovereign rating reviews by international agencies brought attention to an issue that rarely enters public debate. Population aging and long-term population decline limit economic growth prospects and place additional strain on public finances.
Because banks are closely tied to macroeconomic conditions, these developments can quickly translate into lower demand for loans and higher levels of deposits. For Cypriot banks in particular, the mortgage market remains a key source of balance sheet support and profitability.
A decline in demand for mortgages and other property-related loans will slow credit growth and weigh on bank earnings. At the same time, rising deposits will not only put pressure on profitability but also create demand for pension and investment products, areas in which banks currently have limited experience and expertise.
Banks are also being forced to accelerate investments in artificial intelligence and automation, adding further pressure to profit margins.
In the years ahead, demographics will become impossible to ignore. Falling birth rates will turn into far more than a subject for essays on university entrance exams in Cyprus and Greece.
