The International Monetary Fund (IMF) is urging Europe to boost its growth potential in order to bridge the gap between it and the United States. To achieve this, the IMF recommends that Europe focus on regional integration instead of engaging in a subsidy war. According to the organization, low growth potential is a major challenge for Europe, and new policies are needed to address declining productivity growth, an aging population, and lack of investment.
The IMF suggests that increasing labor force participation, preparing workers for structural changes, creating a conducive environment for private investment, and promoting innovation at a European level are key measures to enhance potential growth. By reducing internal barriers by 10%, the IMF estimates that GDP could increase by 7%.
In order to improve productivity and growth prospects, the IMF recommends completing banking and capital markets unions, harmonizing tax and subsidy rules, improving insolvency regimes, reducing barriers to labor mobility and trade, and liberalizing services. The organization also calls for more ambition in initiatives related to digital repositories, insolvency procedures, venture capital, portable pension products, and tax withholding.
The IMF acknowledges that these reforms will require political determination to overcome vested interests and address the costs of adjustment. The organization also sees the necessity of getting the combination of macroeconomic policies right to achieve a soft landing for the European economy and return inflation to target with moderate economic cost in terms of growth. It emphasizes the importance of adjusting monetary policy and accelerating fiscal adjustment across Europe.
In conclusion