The European Union is reflecting on significant milestones and challenges as it celebrates Lithuania's 10 years in the euro area and the 25th anniversary of the Euro. These achievements highlight the commitment to European integration and stability, according to recent remarks made during a formal address.
In recent years, European policymakers have been commended for their swift actions during crises such as the pandemic and the Russian gas shut-off, which laid the groundwork for ongoing recovery. However, challenges remain, including inflation nearing target levels but with lasting effects from the cost-of-living crisis. Europe faces a complex external environment and must focus on increasing growth and building a resilient economy.
A significant issue identified is Europe's productivity gap compared to the United States. Despite narrowing this gap post-World War II, Europe has fallen behind since the 2000s due to structural deficiencies preventing full benefits from technological advancements. This gap results in EU per capita income being about 30% lower than that of the US.
Without substantial policy changes, projections suggest that Europe's income disparity with the US will persist through 2030 due to various headwinds. Nevertheless, Europe has opportunities to change this trajectory by revitalizing economic dynamism.
A key strategy involves realizing a true single market by reducing intra-EU trade barriers, which are significantly higher than those between US states. Lowering these barriers could increase productivity by nearly 7 percentage points in the long term, substantially closing the productivity gap with advanced EU economies.
Enhancing factor mobility is also crucial as labor movement costs between EU countries remain high compared to US states. A more robust venture capital ecosystem is needed to support startups and innovation, with current investments at just one-quarter of US levels.
Strengthening economic resilience through increased productivity within a deeper single market would help smooth out national shocks across Europe. The limited risk-sharing currently seen contrasts sharply with systems like that in the US.
Industrial policy needs careful coordination at an EU level to prevent negative spillovers among member countries and ensure effective use of resources. Recent research indicates that coordinated efforts can significantly reduce losses from unilateral industrial policies.
Finally, domestic reforms are essential alongside EU-level efforts to boost economic dynamism and growth potential. With appropriate strategies, Europe can rise to current challenges as it has done during past crises such as the pandemic and energy disruptions.
The path forward includes integrating markets more fully, smarter industrial policies, and bold domestic reforms aimed at fostering growth and resilience within Europe.
"Thank you."