This development, which has been under way for several decades already, has accelerated as a result of the impact of the crisis on births and migratory flows. People over the age of 65, who in 1970 made up less than 10% of the population, currently account for 21% and, according to INE projections, will represent more than a quarter of the Spanish population within 15 years. Currently, two types of adverse effects of this phenomenon on economic growth can be identified. First, population ageing is leading to a reduction in the number of persons prepared to work or seek employment. Second, indirect negative effects of population ageing on productivity, saving and investment decisions and innovation can be identified. As a result, ageing poses enormous challenges for fiscal policy, since a smaller labour force, that is possibly on average less productive, will have to support the vital needs of a growing number of dependent persons. In fact, the scope and consequences of population ageing form the backdrop to the other long-term challenges facing the Spanish economy. Towards a greater use of the labour factor The formulas to combat the effects of demographic developments involve the search for means to achieve a greater use of the labour factor and higher productivity growth. Despite the recovery, employment still stands below its pre-crisis level. The unemployment rate in the first quarter of 2017 was 18.8%, far higher than in the other euro area countries, 5/8  with the exception of Greece.
Finally, it may also be said that, from a medium and long-term perspective, population ageing exerts upward pressure on items such as healthcare, care for the elderly and, in particular, pensions. In this latter case, the reforms introduced in recent years, such as raising the retirement age, the definition of a factor of sustainability linking the initial pension to the increase in life expectancy, and the new mechanism that makes the annual revision of pensions conditional upon balance between the system’s revenue and expenses, with ceilings and floors, have  7/8  contributed to containing the increase in expenditure and to shoring up the long-term sustainability of the pensions system. That said, in the absence of increased revenues, the adjustment mechanism would rest mainly on a reduction in the average pension relative to the average wage, which is known as the “replacement rate”. With a view to the future, it would be advisable to set an “objective replacement rate”, on the basis of which system revenues should be adjusted to ensure their sustainability. It would moreover be desirable if the reform strategy chosen were to lead to an increase in the system’s transparency and a stronger relationship between contributions and benefits, maintaining automatic adjustment mechanisms that ensure financial equilibrium. Challenges for the European Union governance framework I should like to conclude with a very brief reference to the risks arising in Europe and globally too from political positions and currents of opinion contrary to globalisation and free trade.