Policy brief

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, discussin

Publishing date: 04 April 2019
Authors: André Sapir Guntram B. Wolff Maria Demertzis

Download

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.

About the authors

André Sapir

André Sapir, a Belgian citizen, is a Senior fellow at Bruegel. He is also University Professor at the Université libre de Bruxelles (ULB) and Research fellow of the London-based Centre for Economic Policy Research.

Between 1990 and 2004, he worked for the European Commission, first as Economic Advisor to the Director-General for Economic and Financial Affairs, and then as Principal Economic Advisor to President Prodi, also heading his Economic Advisory Group. In 2004, he published 'An Agenda for a Growing Europe', a report to the president of the Commission by a group of independent experts that is known as the Sapir report. After leaving the Commission, he first served as External Member of President Barroso’s Economic Advisory Group and then as Member of the General Board (and Chair of the Advisory Scientific Committee) of the European Systemic Risk Board based at the European Central Bank in Frankfurt.

André has written extensively on European integration, international trade and globalisation. He holds a PhD in economics from the Johns Hopkins University in Baltimore, where he worked under the supervision of Béla Balassa. He was elected Member of the Academia Europaea and of the Royal Academy of Belgium for Science and the Arts.
Guntram B. Wolff

Guntram Wolff was the Director of Bruegel. Over his career, he has contributed to research on European political economy and governance, fiscal, monetary and financial policy, climate change and geoeconomics. Under his leadership, Bruegel has been regularly ranked among the top global think tanks and has grown in influence and impact with a team of now almost 40 recognized scholars and around 65 total staff. Bruegel is also recognized for its outstanding transparency.

A recognized thought leader and academic, he regularly testifies at the European Finance Ministers' ECOFIN meeting, the European Parliament, the German Parliament (Bundestag) and the French Parliament (Assemblée Nationale). From 2012-16, he was a member of the French prime minister's Conseil d'Analyse Economique. In 2018, then IMF managing director Christine Lagarde appointed him to the external advisory group on surveillance to review the Fund’s priorities. In 2021, he was appointed to the G20 high level independent panel on pandemic prevention, preparedness and response. He is also a professor (part-time) at the Solvay Brussels School of Université Libre de Bruxelles, where he teaches economics of European integration.

He joined Bruegel from the European Commission, where he worked on the macroeconomics of the euro area and the reform of euro area governance. Prior to joining the Commission, he was coordinating the research team on fiscal policy at Deutsche Bundesbank. He also worked as an external adviser to the International Monetary Fund.

He holds a PhD in economics from the University of Bonn and studied in Bonn, Toulouse, Pittsburgh and Passau. He taught economics at the University of Pittsburgh and at Université libre de Bruxelles. He has published numerous papers in leading academic journals. His columns and policy work are published and cited in leading international media and policy outlets. Guntram is fluent in German, English, French and has good notions of Bulgarian and Spanish.
Maria Demertzis

Maria Demertzis is a Senior fellow at Bruegel and part-time Professor of Economic Policy at the School of Transnational Governance at the European University Institute in Florence. She was the Deputy director of Bruegel until December 2022. She has previously worked at the European Commission and the research department of the Dutch Central Bank. She has also held academic positions at the Harvard Kennedy School of Government in the USA and the University of Strathclyde in the UK, from where she holds a PhD in economics. She has published extensively in international academic journals and contributed regular policy inputs to both the European Commission's and the Dutch Central Bank's policy outlets. She contributes regularly to national and international press.