This small town is facing another year of austerity enforced by Portugal's bailout lenders, but there is one category of expenses the mayor says he won't cut: birth incentives—the awards of up to €1,000 ($1,300) to new mothers, as well as free nursery services and tax breaks on homes for young couples.

"That's an area we must continue doing what we can to help," said António Rui Esteves Solheiro, who has governed Melgaço for more than three decades. "It's about our future."

Mr. Solheiro's efforts are driven by the stark demographics accompanying Portugal's downturn. The number of newborns and new immigrants in town isn't offsetting the number of residents who die, most of them in the 65-and-older age group that makes up more than one-third of the population of 9,172. Just 33 babies were born in Melgaço last year, half the average during the boom of the previous decade.

If the trend continues, Mr. Solheiro said, the economy of this relatively prosperous town on Portugal's northern tip will falter.

Communities across the Continent, particularly in countries hit hard by the euro-zone debt crisis, are recording drops in birthrates that experts say could speed the decline and aging of a European population already struggling with low economic growth and high public spending.