The International Monetary Fund (IMF) has issued a report highlighting the need for Europe to increase its growth potential in order to close the gap with the United States. To achieve this, the organization recommends promoting regional integration as a way to improve growth rather than engaging in a subsidy war. According to the IMF, low potential growth is a major challenge for Europe and new policies are required to address declining productivity growth, an aging population, and lack of investment.
To enhance potential growth, the IMF suggests several key measures such as increasing labor force participation, preparing workers for structural changes, creating a conducive environment for private investment, and promoting innovation at a European level. By reducing internal barriers by 10%, the IMF estimates that GDP could increase by 7%.
To improve productivity and growth prospects, the IMF recommends 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.
The IMF acknowledges that these reforms will require political determination to overcome vested interests and address the costs of adjustment. The organization also 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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