Let’s Stop being Gloomy about Europe. CEPS Working Document No. 293/May 2008

De Grauwe, Paul. (2008) Let’s Stop being Gloomy about Europe. CEPS Working Document No. 293/May 2008.

Abstract

Pessimism has been rampant in many EU-countries over the past decade, largely fed by lagging productivity growth in the EU since the late 1990s and a perception that the US has a superior economic model. This perception has led to the view that the only way to restore higher levels of productivity growth is by introducing deep structural reforms in the EU, making goods and labour markets more flexible. This paper presents the argument that such pessimism is excessive: a significant part of the productivity growth differential between the US and the EU is cyclical, and is already turning around. In addition, there are areas in which the EU is structurally better prepared than the US to face the challenges of globalisation.