IMF Calls for Regional Integration to Boost European Economy and Close Growth Gap with US
Europe is facing a major challenge in terms of growth, productivity, and income levels, according to the International Monetary Fund (IMF). The organization believes that in order to close the gap with the United States, Europe must increase its growth potential. To achieve this goal, the IMF recommends promoting regional integration rather than engaging in a subsidy war.
The IMF emphasizes 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 addition to these reforms, the IMF suggests 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.
However, implementing these reforms will require political determination to overcome vested interests and address the costs of adjustment. The IMF 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.
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