The EU economic recovery: why is it so slow?

Philipp Hildebrand, Member of the Governing Board

The Brussels Economic Forum, Charlemagne, 21.04.2005

Real GDP growth in the U.S. has consistently outperformed growth in the European Union since the 80s. Besides cyclical and special factors like German unification, there is a structural dimension to this question. GDP growth differences vs. the U.S. can be explained by measurement differences and higher growth rates of labour input in the U.S. up to 1995. Since then, labour input growth rates in the EU have caught up in line with the Lisbon agenda, which is important to securing the financing of the social contract. However, the increased labour input led to a reversal in relative growth of productivity with the U.S. now clearly leading the EU. For the EU, the challenge ahead consists in compensating this initial decline in productivity growth without stopping further liberalization of the labour market. This has to be done through educational efforts and liberalization of other input markets as well as product markets, thereby unleashing the full productivity potential of the new information and communication technologies.