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Europe needs to boost its growth in the face of global headwinds or risk losing its way of life, said the head of the International Monetary Fund Kristalina Georgieva on Wednesday.
“I don’t want Europe to become the United States of America, but I want the productivity and functionality of Europe to go up,” she told Euronews.
“In Europe we enjoy being a lifestyle superpower. Unless we become more productive we may lose this advantage,” she added.
Georgieva was speaking ahead of the publication of a new IMF statement on Thursday, which offers economic suggestions to eurozone nations.
One key message is that Europe must speed up progress on the single market, which ensures the free movement of goods, services, capital and people between single market nations.
“There are no tariffs within Europe, but it doesn’t mean there are no barriers in Europe, regulatory and otherwise,” Georgieva told Euronews.
The IMF estimates that barriers to free movement in the single market are equivalent to a 44% tariff on goods and a 110% tariff on services.
Georgieva noted that in the US, what is produced in one state is split 30-70, meaning 30% is consumed in that state and 70% is sent to other states. In Europe, on the other hand, 70% of production is consumed domestically while 30% is sent abroad. This is a set-up that limits growth by keeping markets smaller and less competitive.
“If Europe completes the single market, over 10 years, it would boost GDP by 3%,” said Georgieva.
Means to advance progress on this front include lowering regulatory fragmentation, supporting labour mobility, facilitating cross-border banking mergers, integrating the energy market, and making progress on the capital markets union (CMU) — said the IMF.
The CMU aims to allow investment and savings to flow seamlessly across member states. This would make it easier for businesses in one EU state to source funding from another EU state, supporting firms to grow and create jobs.
In terms of deepening capital markets, the IMF’s statement added that the EU should “increase institutional investors’ familitary with venture capital as an asset class and address remaining undue restrictions on their ability to invest in it”.
Looking ahead, the IMF expects eurozone growth at a moderate 0.8% in 2025, picking up to 1.2% in 2026.
Trade and geopolitical tensions are expected to dampen sentiment and weigh on investment and consumption.
With regards to interest rates, the IMF argued that “a monetary policy stance close to neutral is justified” as headline inflation nears the ECB’s 2% target.
When balancing spending pressures with fiscal sustainability, the IMF recommended that countries with strong public finances support countries with less room for manoeuvre.
“It is crucial that care be taken in implementing the EU fiscal rules to ensure that countries with low fiscal risks that intend to increase spending to boost potential growth and enhance resilience should not be constrained from doing so by the rules,” said Thursday’s statement.
