Download publication

Policy Contribution

Promoting sustainable and inclusive growth and convergence in the European Union

This Policy Contribution was written for the Informal ECOFIN Meeting, Bucharest, 5 April 2019. The authors look at the EU’s economic agenda, discussing the priorities for the next five years.

By: , , and Date: April 4, 2019 Topic: European Macroeconomics & Governance

The European Union can look ahead at the next five years from a good economic position. Employment is comparatively high, the recovery has been uninterrupted for several years and income inequality remains less pronounced than elsewhere in the world. But the EU faces nevertheless formidable economic challenges. In the short-term, there is the potential for strong macroeconomic weakening, resulting partly from uncertainty generated by the global trade conflict. The EU also has a long-term growth and productivity weakness. Finally, the EU, especially the euro area, suffers from a lack of convergence and its social cohesion is threatened.

The EU must put together a European growth strategy that focuses on innovation while addressing climate change and improving social cohesion. Growth requires investment, research and innovation. While the current debate on industrial policy is welcome, the EU should be careful to maintain, or even improve, the conditions for growth in Europe and must avoid falling into the protectionism trap. To achieve its climate goals, the EU must ensure that its consumption and its production become greenhouse-gas emission neutral by 2050 or earlier, implying a massive transformation of all economic activities. This will pose major economic and social challenges. Distributional concerns will therefore have to figure prominently in this transformation. More generally, the benefits of growth need to be distributed more fairly in our societies. While social policy is and should remain a national responsibility, the EU needs to ensure that the single market, a key asset to promote growth and economic well-being, does not undermine the ability of countries to raise taxes on capital income, wealth and inheritance. A rising tax burden on the working middle class might have already become incompatible with Europe’s social market economy.

Convergence in the EU and in the euro area is a necessity: the European growth strategy cannot be blind to sustained regional growth differences. An EU in which economic growth does not spread through all of its major regions will be politically challenged. The paradox is that many of the policy instruments to address this problem remain in the hands of national policymakers, even though the way they use them has significant implications for the rest of the EU. The EU supports convergence through its budget and technical support but the fundamentals of this paradox remain. In the euro area, further measures are needed to address some of the systemic causes of divergence. In particular, it is imperative to complete banking union and for capital markets to become more integrated, since a well-functioning financial system is fundamental for growth.

A euro-area safe asset would bring benefits but is difficult to establish. EU fiscal rules need to be reformed to improve the macroeconomic management of the euro area. A euro-area budget and more responsive national fiscal policies are important tools to better respond to cyclical downturns. Finally, the relationship between the euro area and non-euro area countries needs to be addressed.

Read article More on this topic More by this author
 

Opinion

An EU - China investment deal: a second look

For the moment, it does not look like we have the basis for greater and deeper economic relations with China. However, dismissing China and the opportunities that it creates for global cooperation would also be a mistake.

By: Maria Demertzis Topic: Global Economics & Governance Date: January 19, 2021
Read article Download PDF
 

Policy Contribution

The productivity paradox: policy lessons from MICROPROD

The objective of MICROPROD, an EU-wide research project that runs until the end of 2021, is to understand what is driving the current productivity slowdown and what the potential consequences are for Europe's economic model and its citizens’ welfare. This Policy Contribution summarises the main, policy-relevant conclusions of the 20 MICROPROD papers delivered so far.

By: Grégory Claeys and Maria Demertzis Topic: European Macroeconomics & Governance, Innovation & Competition Policy Date: January 6, 2021
Read article More on this topic More by this author
 

Opinion

Europe's disappointing investment deal with China

Why rush a deal that is so inherently complex?

By: Alicia García-Herrero Topic: Global Economics & Governance Date: January 4, 2021
Read article Download PDF More on this topic
 

Policy Contribution

Deglobalisation in the context of United States-China decoupling

After decades of increasing globalisation, there now seems to be a slowing, or even a turn to deglobalisation, meaning decelerating trade and investment and reduced global value chains. This trend seems to have accelerated because of the United States’ push to contain China in the context of their strategic competition. So far, however, there is less evidence of deglobalisation in terms of financial flows.

By: Alicia García-Herrero and Junyun Tan Topic: Global Economics & Governance Date: December 21, 2020
Read article More on this topic More by this author
 

Blog Post

When and how should the European Union conclude an investment agreement with China?

A look into the potential Comprehensive Agreement on Investment between China and the European Union.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: December 17, 2020
Read article Download PDF More by this author
 

Parliamentary Testimony

European Parliament

Euro area accession countries in the context of the pandemic

Testimony before the European Parliament on the subject of euro area accession.

By: Zsolt Darvas Topic: European Macroeconomics & Governance, European Parliament, Testimonies Date: November 19, 2020
Read article More on this topic More by this author
 

Blog Post

Not all foreign investment is welcome in Europe

A new plan to tackle foreign subsidies would empower the European Commission to investigate foreign investments in the European Union, with Chinese investment particularly in the spotlight. This increased scrutiny could deter some investors. Overall however, fairer competition is worth some lost opportunities.

By: Julia Anderson Topic: Global Economics & Governance Date: November 10, 2020
Read article More on this topic
 

Opinion

Politics, not economics, demands a strengthened international role for the euro

Not just the EU but also other countries, particularly China, need a defence against weaponisation of the dollar.

By: Alicia García-Herrero and Federico Steinberg Topic: European Macroeconomics & Governance Date: October 28, 2020
Read article More on this topic More by this author
 

Opinion

The pandemic will structurally change the global economy more than we think

It is time to rethink many of the basic principles of our economic model to mitigate the impacts of the COVID-19 pandemic.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: October 20, 2020
Read article Download PDF More by this author
 

Parliamentary Testimony

European Parliament

Strengthening the international role of the euro

Testimony before the European Parliament on the International Role of the Euro.

By: Guntram B. Wolff Topic: European Parliament, Testimonies Date: October 1, 2020
Read article More on this topic More by this author
 

Opinion

Trump’s International Economic Legacy

If Donald Trump loses the United States presidential election in November, he will ultimately be seen to have left little mark in many areas. But in the US's relationship with China, the decoupling of economic links could continue, and that could force Europe into hard choices.

By: Jean Pisani-Ferry Topic: Global Economics & Governance Date: September 29, 2020
Read article Download PDF More on this topic
 

External Publication

Diversification and the world trading system

Diversification is important because it is associated with economic growth and reduced volatility.

By: Mohammed Al Doghan, Abdelaaziz Ait Ali, Muhammad Bhatti, Carlos Braga, Uri Dadush, Abdulelah Darandary, Anabel González and Niclas Poitiers Topic: Global Economics & Governance Date: September 16, 2020
Load more posts