Dear Reader: The EU is one of the world’s most advanced and productive economies, but needs to constantly upgrade its performance in a competitive world. Something that has featured prominently in the economic debate over many years is its productivity gap with the US.

Europe did narrow the gap over most of the second half of the 20th century, catching up particularly fast in the 1950s and 60s, but this trend was interrupted for a decade from the mid-1990s when the EU’s productivity growth fell behind and America’s surged ahead. This led to concerns about how to maintain and increase Europe’s competitiveness and standard of living. The fact that in the last two years Europe’s productivity growth has started to pick up speed again is therefore a highly welcome development and one which we in DG ECFIN have been analysing closely.

One of our findings is that much of the acceleration in productivity growth is due to the current cyclical upswing. Yet to meet the Lisbon Agenda target of a highly competitive economy it needs to be made sustainable. There is considerable scope to boost productivity further by promoting innovation, investing in education and training, intensifying ICT diffusion, fostering competition, and streamlining the single market.

Some EU Member States and sectors are showing the way and have already achieved high productivity levels – the network industries in particular – while much of the remaining gap is concentrated in just a few sectors, notably services.

The higher economic growth the EU has enjoyed during the last two years has in large part been won through reforms in areas such as labour markets, business regulation and social welfare.

Sustaining this growth in the future will only be possible through productivity gains as the population starts to shrink. It is therefore essential that the EU continues to tackle the root causes of low productivity growth.

Klaus Regling
Director-General, Economic and Financial Affairs DG

Download European Economy News, January 2008

PDF format, 1MB, 16Pages.

European Economy News is published by the External Communication Unit of the European Commission’s Directorate-General for Economic and Financial Affairs.

Table of Contents:
WHAT’S NEW 3
A round-up of news and events in European economics

NEWS IN DEPTH
Cyprus and Malta: two islands, one currency 5
Two invited contributions from the new euro-area Member States on the significance of the euro and EMU for Cyprus and Malta
More for less: the productive path to prosperity 8
The 2007 EU Economy Review took productivity as its theme. While the EU productivity gap with the US is closing, the review stresses the need for more reforms to ensure productivity growth is sustainable
Shifting Lisbon into an upward cycle 10
DG ECFIN is contributing to a three-year review of progress on the Lisbon Strategy – Member States need to accelerate their efforts is the main message

MEMBER STATE PROFILES
The economy of Germany: powered by reform 12
The German economy is powering ahead – producing more growth and more jobs. At a recent DG ECFIN seminar, economists debated whether the reform process has gone far enough to ensure this growth will continue

LOOKING AHEAD 14
DG ECFIN’s agenda, and events for your diary

RECENT RESEARCH
AND ANALYSIS BY DG ECFIN 16

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Economic and Monetary Union: 10 years on
Organised by DG ECFIN, the annual Brussels Economic Forum (BEF) brings together EU leaders, economists and many other stakeholders to discuss major issues in European economics and economies. This year’s BEF, held on 15-16 May, took the first ten years of Economic and Monetary Union as its subject, and the recent DG ECFIN ‘EMU @10 report’ provided the background context.

The economy of the euro area
The euro area has proved over the past ten years to have been a successful and increasingly integrated economy. Today, in many respects, the euro area can be viewed as a single economic entity comparable to other very large economies.

Slovakia’s date with the euro
Slovakia has convincingly passed the first of the EU’s tests for euro entry. Armed with the Commission’s recommendation, it is well on the way to introducing the single currency, as expected, on 1 January 2009.

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