## europe-fd-june25

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### Global outlook and trade dynamics
- IMF April 2025 World Economic Outlook reference forecast: global growth will slow to 2.8 percent this year from 3.3 percent last year.
- Downside risks: probability of a world recession—global growth falling below 2 percent—“has almost doubled since October.”
- Tariffs and trade reordering:
  - A sharp increase in trade tariffs will slow global growth significantly this year and next but “the world economy will not sink into recession.”
  - US effective tariffs are “spiking to the highest rates” (April assessment).
  - Multinational firms relocating production to “connector countries” such as Mexico, Morocco, and Vietnam.
  - World trade growth predicted to be cut in half this year to reflect a “reordering” of the global trading system.
- Trade-induced gains and scale:
  - World trade increased fivefold in real terms since 1980; trade’s share of global output rose to 60 percent from 36 percent.
  - Lower trade costs increased global GDP by 6.8 percent in real terms between 1995 and 2020; low-income countries experienced a 33 percent increase over the same period.
  - By the numbers: 59 countries, with 80% of global GDP, are driving the rise in public debt.

### Competitiveness, productivity, and structural drivers of growth
- Growth decomposition: growth inputs are labor; capital (including land); and total factor productivity (TFP). More than half of the growth lost since the crisis was driven by slowing TFP growth.
- Policy levers:
  - Reduce frictions that impede resource reallocation (regulatory barriers, financing constraints).
  - Combine currency depreciation with fiscal tightening where appropriate to shift production toward exports without overheating the domestic economy.
  - Increase public investment when national savings are excessively high and investment too low, even if that reduces competitiveness in relative price terms.
- Terms-of-trade effects: productivity improvements abroad can lower import prices (good for importers) or lower export prices (bad for exporters), with larger effects for small, specialized economies.

### Technology, AI, and distributional impacts
- Optimism and risks:
  - Generative AI could substantially raise productivity if workers adopt the technology effectively.
  - Pace of innovation described as “staggering,” with “the cost of generative AI dropping by a factor of 10 each year,” according to some estimates.
  - Rapid technological transformation could cause major dislocations without policies that help workers adapt.
- Empirical findings on AI’s heterogeneous impact:
  - In research on scientists, the output of the top decile was 81 percent higher with AI than without.
  - In a study of call center employees, novice and low-skilled workers saw a 34 percent improvement; AI tools increased productivity by 14 percent on average.
- Mechanism: when AI improves prediction and judgment is scarce and high-stakes, higher-skilled workers disproportionately benefit; when AI substitutes for prediction in low-stakes tasks, lower-skilled workers can benefit disproportionately.
- Policy recommendations for distributional effects:
  - Expand access to high-quality education and training emphasizing complex decision-making skills.
  - Promote global talent mobility and knowledge exchange.
  - Create incentives (funding, infrastructure, AI adoption incentives) to spread AI prediction capacity beyond traditional hubs.

### Europe — geopolitical, economic, and institutional challenges
- Overarching assessment: Europe faces a crisis with three interlocking dimensions: geopolitical, economic, and institutional; requires a complete change in mindset beyond more borrowing or new rules from Brussels.
- Critical minerals and resources:
  - Demand for critical minerals for clean energy technologies expected to rise fivefold by 2040.
  - The EU’s share of global production is less than 7 percent.
  - Production of most minerals concentrated in one or two countries; China dominates refining, including refining Europe’s mining output.
  - European businesses are barely present in the critical minerals supply chain due to environmental, social, and governance rules and concerns over political stability and the rule of law.
- Deeper integration objectives and barriers:
  - Aim to deepen economic integration to boost productivity and competitiveness (defense, energy, telecoms, finance highlighted).
  - Historical persistence: better regulation agenda announced in 2002; REFIT launched in 2015; Giovannini reports in 2001 and 2003 on financial integration.
  - Institutional barrier: distrust between member states and in EU institutions must be overcome.

### Fragmentation, gold-plating, and market infrastructure
- Fragmentation facts:
  - EU still has 18 clearing and 21 settlement markets, compared with just one of each in the US.
- Gold‑plating: member states adding local requirements when transposing EU single‑market directives into domestic law identified as major barrier.
- Commission has promised countermeasures; legal action capability noted but questioned whether it will be used.

### Savings and Investment Union / Capital markets integration
- Requirements for a true SIU: harmonization of national insolvency rules, corporate law, aspects of tax law, and promotion of pan‑European pension vehicles.
- Market scale:
  - Total market capitalization of the bloc’s stock exchanges was about $12 trillion in 2024, or 60 percent of the GDP of participating countries.
  - Two largest US stock exchanges combined had market capitalization of $60 trillion, or over 200 percent of domestic GDP.
- Savings and investment behavior:
  - EU household saving rate about 15 percent of GDP, about three times that of the US.
  - Americans invested $4.60 in equity, investment funds, and pension or insurance funds for every dollar invested in such assets by Europeans in 2022.
  - About 80 percent of savings remain domestic and about 80 percent are in bank deposits; EU houses less than 15 percent of start-ups valued at more than $1 billion.
- Measured intra‑EU barriers:
  - IMF estimates remaining intra‑EU trade barriers equivalent to an ad valorem tax of 45 percent for manufacturing and up to 110 percent for services.
- Governance proposals:
  - Early designs: common insolvency framework and an EU‑issued safe asset remain largely unimplemented.
  - Proposal for ESMA as single common regulator and common reporting requirements; progress slow.

### Banking union and cross‑border banking
- Completion of the EU’s banking union—single banking rule book, backstop for Single Resolution Fund, or common deposit insurance—has largely dropped from current discussions.
- Warning: without thriving cross‑border banks, a savings and investment union is unlikely to fulfill its potential.

### Productivity, firm structure, and innovation gaps
- TFP and income gaps:
  - EU’s TFP is about 20 percent below the US level.
  - Per capita income in the EU’s largest advanced economies about 30 percent lower than the US average (GDP per capita difference with the US, PPP, 2024).
- Firm and R&D differences:
  - US‑listed tech firms’ productivity increased by about 40 percent over the past two decades; European tech firms have seen almost no improvement.
  - US firms tripled R&D spending to 12 percent of sales revenue—three times European companies’ ratio, which averaged 4 percent.
  - Venture capital: US invested €210 billion in over 15,000 deals in 2024 versus €57 billion and fewer than 10,000 deals in Europe.
  - IMF calculations: venture capital funds raise seven times more in the US than in the EU.
- Firm size and scale:
  - About a fifth of European employees work in microfirms with 10 people or fewer, about double the US figure.
  - An average European firm 25 years old employs about 10 workers; comparable US companies employ about 70.
  - A future “unicorn” company leaves the EU for the US at a rate that is 120 times faster than the other way around.
- Positive developments:
  - EIB invested a record €19.8 billion in high‑risk digital and innovation companies in 2024; €14.4 billion from the EIF, half as equity.
  - Spain’s start‑up law (end‑2023) boosted investment by 16 percent to €2 billion and mobilized about €3 billion of private funds.

### Demographics, longevity, and labor-force implications
- Working‑age population trends:
  - Europe’s working‑age population set to shrink by 54 million by the end of this century.
- Longevity and health:
  - One in ten people worldwide now over 65; proportion projected to double over the next 50 years.
  - Chronic noncommunicable diseases account for 60 percent of the disease burden globally and 81 percent in the EU.
  - Evidence: A 20 percent reduction in incidence of six major chronic diseases increases GDP 1 percent within five years and 1.5 percent in ten years in UK evidence.
- Policy reframes and recommendations:
  - Treat longer, healthier lives as an opportunity; adopt life‑course approaches to health and make healthy life expectancy a key metric for health expenditure allocation.
  - Invest in later‑life human capital; redesign health, education, work, and financial systems to capture a “longevity dividend.”
  - Financing prevention may require more government debt or innovative financing such as social impact bonds.

### Population decline patterns and policy responses
- Cumulative population declines (2025–50):
  - China: 155.8 million
  - Japan: 18 million
  - Russia: 7.9 million
  - Italy: 7.3 million
  - Ukraine: 7 million
  - South Korea: 6.5 million
- Highest average annual rates of population decline:
  - 0.9 percent in Moldova and in Bosnia and Herzegovina
  - 0.8 percent in Albania, Bulgaria, and Lithuania
  - 0.7 percent in Latvia and Ukraine
- Aging shares (countries experiencing declines): from 17.3 percent in 2025 to 30.9 percent in 2050.
- Policy options and adaptations:
  - Family‑friendly policies cited: tax breaks for larger families; extended and more flexible parental leave; public or subsidized private childcare; subsidies for infertility treatment.
  - Complementary policies: education access and quality, retirement policy changes (raise retirement age), investments in health and education, and accounting for AI, automation, and digitalization in labor‑market planning.

### Country highlights and policy prescriptions
- Argentina:
  - Economy will expand by 5.5 percent this year and 4.5 percent the next (IMF projections).
  - Consumer price inflation peaked at 220 percent last year; seen falling to 14.5 percent in 2026, “the lowest for more than a decade.”
  - IMF executive board approved a new $20 billion arrangement for Argentina in April.
- Germany — diagnosis and recommendations:
  - Germany’s economy has grown by just 0.1 percent since 2019; US grew 12 percent and the euro area 4 percent over same period.
  - German Council of Economic Experts expects potential output to increase by only 0.4 percent per year for the next two years.
  - Demographics: in next 10 years, 20 million workers expected to retire while only 12.5 million enter the labor market.
  - Venture capital grew from average 0.02 percent of GDP (2011–13) to almost 0.09 percent in 2021–23.
  - Policy recommendations include deeper European integration, coordinated energy build‑out, stronger and more integrated capital markets, increased venture capital via EIF or European Tech Champions Initiative, encourage household investment shift from savings accounts into diversified stock market investment, and strategic use of fiscal space (special infrastructure fund; consider design flaws of the debt brake).
- Poland — transformation outcomes:
  - Per capita income rose from $13,100 in 1990 to $47,100 today in real terms (3.6 times increase).
  - This year Poland set to grow almost 4 percent.
  - Since 1989, Polish GDP grown by 220 percent in real terms.
  - Unemployment less than 3 percent today.
  - Poland attracted over $310 billion in foreign investment between 2004 and 2023.
  - Drivers: systemic reforms, education expansion, accession to WTO, OECD, NATO, EU.
- Greece — fiscal consolidation and reform:
  - Public debt decreased almost 55 percentage points of GDP.
  - Primary surplus reached 4.8 percent of GDP in 2024; overall budget surplus 1.3 percent in 2024.
  - Tax compliance effort estimated to have increased revenues by almost 3 percent last year.
  - Fiscal plan: aim to maintain primary surpluses close to 2.5 percent of GDP over next few years; debt‑to‑GDP ratio projected to decline by an additional 20 percentage points by 2028.
  - Policy priorities: strengthen tax compliance, simplify business regulation, accelerate justice reforms, expand financing beyond bank lending.
- Spain — recovery and green transition:
  - COVID‑19 shock led to an 11 percent drop in output in 2020.
  - Furlough programs supported nearly 3.4 million workers at peak; public credit lines bridged liquidity for over 674,000 firms.
  - Spain was the world’s fastest‑growing major developed economy in 2024; 2025 IMF growth projection was the only major advanced economy revised up in April.
  - Budget deficit down by 7 percentage points and below EU threshold of 3 percent for first time in six years.
  - Debt‑to‑GDP ratio dropped by more than 22 percentage points from its pandemic peak in 2021, approaching 100 percent.
  - Renewable share of electricity generation rose from just over 20 percent in 2019 to 56 percent last year; central bank attributes a 40 percent reduction in electricity prices to this change.
  - Spain invested almost €50 billion in green and digital transitions; recovery funds expected to add 3.4 percent to GDP by 2031 versus a no‑plan counterfactual.
  - Policy priorities: reduce unemployment, improve training, address housing affordability, maintain fiscal responsibility while protecting welfare state.

### Migration, history, and contemporary statistics
- Long‑run facts:
  - Human migration began at least 300,000 years ago.
  - The number of migrants nearly doubled from 153 million in 1990 to 281 million in 2020.
  - 3.6 percent of recorded citizens were born in a different country; 30 years earlier, it was 2.9 percent.
- Migration impacts:
  - Migrants send home over $1 trillion a year in remittances.
  - Immigrants contribute disproportionately to intellectual leadership and entrepreneurial activity in host countries.
  - Return migration rates: anywhere from a fifth to half of migrants return home or move to a third country within five years.

### Governance, communication, and the role of economists
- Recommendations for the profession:
  - Pursue transparency, openness to revision, and honest engagement with evidence.
  - Listen to concerns about frictions (housing, social ties) that impede worker reallocation.
  - Uphold data integrity: acknowledge methodological differences and avoid careless comparisons that could undermine trust in official statistics.
  - Communicate in plain language, admit mistakes, and propose politically realistic alternatives when full implementation is infeasible.

*Italic: Content derived from the IMF Finance & Development (June 2025) PDF (content unit: europe-fd-june25).*

### 0.5 percent potential, the IMF says in its regular April check on the state of the world’s third-largest economy. Above,

### World Economy to Dodge Recession

### Global outlook and growth projections
- The IMF’s April 2025 World Economic Outlook “reference forecast” projects global growth will slow to 2.8 percent this year from 3.3 percent last year.
- The report warns downside risks dominate the outlook; the probability of a world recession—global growth falling below 2 percent—“has almost doubled since October.”
- The IMF finds that “a sharp increase in trade tariffs will slow global growth significantly this year and next but the world economy will not sink into recession.”
- Pierre-Olivier Gourinchas (IMF economic counsellor and Research Department director) urged “a clear, stable, and predictable trading environment.”

### Trade disruption, tariffs, and reordering of global trade
- The flagship report predicts world trade growth will be cut in half this year to reflect a “reordering” of the global trading system.
- US effective tariffs are noted as “spiking to the highest rates” (as described in the April assessment).
- Multinational firms are responding to trade restrictions by relocating production to “connector countries” such as Mexico, Morocco, and Vietnam that trade freely with both Western and China-led blocs.
- The report notes that while global trade has proved adaptable, too much trade disruption will diminish global growth and prosperity.

### Competitiveness, productivity, and structural drivers of growth
- Economists decompose growth into three inputs: labor; capital (including land); and total factor productivity. More than half of the growth lost since the crisis was driven by slowing total factor productivity growth.
- The article stresses that raising economy-wide productivity is generally preferable to an exclusive focus on “competitiveness” measured by relative prices.
- Terms-of-trade effects matter: productivity improvements abroad can lower import prices (good for importers) or lower export prices (bad for exporters), with larger effects for small, specialized economies and typically smaller effects for large, diversified economies.
- Policy levers discussed include:
  - Reducing frictions that impede resource reallocation (regulatory barriers, financing constraints).
  - Combining currency depreciation with fiscal tightening where appropriate to shift production toward exports without overheating the domestic economy.
  - Increasing public investment when national savings are excessively high and investment too low, even if that reduces competitiveness in relative price terms.

### Role of technological change and AI
- The IMF notes optimism that technological breakthroughs—particularly generative AI—could substantially raise productivity if workers adopt the technology effectively.
- The pace of innovation is described as “staggering,” with “the cost of generative AI dropping by a factor of 10 each year,” according to some estimates.
- The article cautions that rapid technological transformation could cause major dislocations without policies that help workers adapt.

### Global integration, emerging markets, and distributional effects
- World trade has increased fivefold in real terms since 1980, with its share of global output expanding to 60 percent from 36 percent.
- Lower trade costs increased global GDP by 6.8 percent in real terms between 1995 and 2020; low-income countries experienced a 33 percent increase over the same period.
- Emerging markets and connector countries are critical to sustaining global trade as advanced economies become more inward-looking.
- The IMF finds that globalization had a much smaller impact than technological progress on rising inequalities within countries, and policy should focus on easing worker mobility and providing compensatory measures for the most vulnerable.

### Policy recommendations and institutional role
- Policymakers should pursue structural reforms that increase labor and capital mobility across firms, industries, and regions to reduce adjustment costs.
- Compensatory measures and skills-upgrading programs can both protect vulnerable workers and bolster public support for reform.
- The IMF emphasizes the value of a stable, predictable trading system and international cooperation to address long-standing gaps in trading rules.
- The institution highlights its historical mission to facilitate balanced growth of international trade to support employment and real incomes, calling for “carefully calibrated policy” to achieve these objectives.

### Selected country and statistical highlights (preserved exactly)
- Argentina’s economy will expand by 5.5 percent this year and 4.5 percent the next, according to IMF projections.
- After peaking at 220 percent last year, consumer price inflation in Argentina is seen falling to 14.5 percent in 2026, “the lowest for more than a decade.”
- In April, the IMF’s executive board approved a new $20 billion arrangement for Argentina.
- By the numbers graphic references: 59 countries, with 80% of global GDP, are driving the rise in public debt.
- World trade has increased fivefold since 1980; trade’s share of global output rose to 60 percent from 36 percent.
- Trade-induced gains: global GDP up 6.8 percent in real terms between 1995 and 2020; low-income countries up 33 percent.

*Italic: Content derived from the IMF Finance & Development (June 2025) PDF on the state of the world economy and related commentaries.*

### conclusions. Transparency, openness to

### conclusions. Transparency, openness to revision, and honest engagement with evidence are the best ways to show that economics remains a vital discipline.

### Listening to concerns
- Backlash against China’s rapid integration into global trade illustrates that standard economic theory—where displaced workers find new opportunities—does not account for frictions such as the cost of housing, social ties, or other barriers; these frictions contributed to more persistent disruption—and greater backlash—than expected.
- Public reaction to the inflation surge of the early 2020s suggests costs exceeded what standard economic thinking would predict.
- Research findings highlighted:
  - Inflation imposes large cognitive costs through the attention required to evaluate whether prices and wages are fair and the need to adjust financial plans.
  - Statements like “wages tend to keep up with inflation” may be true on average, but they obscure important variations.
  - In the United States, for example, wages rose faster for many lower-income workers in the early 2020s—but gains were far from universal.
- Policy implication: Recognizing these concerns does not mean abandoning economic principles; it means incorporating a more nuanced understanding of how people experience economic change. Dismissing such concerns weakens economists’ credibility and reduces the likelihood of good policy ideas gaining traction.

### Data integrity
- Core principle: Uphold rigorous use of data and standards of integrity when participating in public debate.
- Risks identified:
  - Social media and broader access to data and visualization tools make it easier to misuse statistics to bolster thin arguments.
  - Casual or opportunistic use of data risks undermining trust in economic analysis over the long run.
  - Pointing to discrepancies between a government series and another source without acknowledging differences in methodology, coverage, or definitions can give the false impression that official indicators are flawed or manipulated.
  - In an era when statistical agencies face growing political and budgetary pressures, careless comparisons risk the ongoing availability of high-quality, unbiased government data.
- Recommendation: Defend data integrity by acknowledging methodological differences and avoiding careless comparisons that could weaken trust in official statistics.

### Engaging effectively
- Political realism:
  - Economists must recognize that policies they see as optimal may not be in the context of broader political considerations.
  - Where full implementation is infeasible, economists should offer alternatives that respect those considerations. Flexibility is not a retreat from principle—it’s recognition of the realities of governing.
- Communication:
  - Technical jargon may project expertise or exclude nonexperts; it is not a sustainable strategy for influence.
  - Economists should use plain language and avoid unnecessarily complex graphics. Simplicity is accessibility, not condescension.
- Public outreach:
  - Economists must talk to the broader public, not just to policymakers, because politicians respond to their constituents.
  - The profession must earn public trust if its advice is to shape policy, using the channels and tools that reach everyone.
- Norms for the profession:
  - Economists should admit mistakes, listen better, defend data, and communicate effectively.
  - The role of economists is to provide rigorous analysis that improves decisions, not tell people what they want to hear. The objective is to make economics relevant, accessible, and respected in the policy conversation—not necessarily popular.

### Europe: geopolitical, economic, and institutional challenges
- Overarching assessment: Europe faces a crisis with three interlocking dimensions: geopolitical, economic, and institutional. It requires a complete change in mindset beyond more borrowing or new rules from Brussels.
- Access to resources and critical minerals:
  - Demand for critical minerals necessary for clean energy technologies is expected to rise fivefold by 2040.
  - The EU’s share of global production is less than 7 percent.
  - Production of most minerals is highly concentrated in one or two countries; China dominates refining, including refining Europe’s own modest mining output.
  - Diversification efforts via trade agreements remain vulnerable to trade wars, rising export restrictions, a desire by developing economies to capture more of the value chain, and the absence of a functioning dispute resolution mechanism at the World Trade Organization.
  - Securing access for US companies to critical minerals is a centerpiece of President Donald Trump’s America First foreign policy.
  - European businesses, constrained by environmental, social, and governance rules and concerns over political stability and the rule of law, are barely present in the critical minerals supply chain.
  - Policy question: Can rule-bound Europe develop the geopolitical and industrial strategies to compete in a more contested global order?
- Deeper integration:
  - Objective: Deepen economic integration to boost productivity and competitiveness.
  - Reports by Enrico Letta and Mario Draghi provide clear blueprints for reform; the European Commission has vowed to deliver measures to cut red tape and extend the single market in sectors resistant to integration, including defense, energy, telecoms, and finance.
  - Historical context and persistence of reform efforts:
    - The EU first announced a better regulation agenda in 2002 and launched another, the Regulatory Fitness and Performance Programme (REFIT), in 2015.
    - Deeper integration in financial services has been pursued for decades; the Giovannini reports set out proposals in 2001 and 2003, many reappearing in the push for a capital markets union.
  - Institutional barrier: Distrust between member states and in EU institutions must be overcome before effective deeper integration can be achieved.

*Source: conclusions. Transparency, openness to revision, and honest engagement with evidence are the best ways to show that economics remains a vital discipline. (F&D, June 2025)*

### 2015. Now the project has been rebadged

### EUROPE’S INTEGRATION IMPERATIVE

### Fragmentation and gold‑plating
- The EU still has 18 clearing and 21 settlement markets, compared with just one of each in the US.
- Fragmentation in market infrastructure is reflected in fragmented products and services.
- “Gold‑plating”—member states adding local requirements when transposing EU single‑market directives into domestic law—is identified as a major barrier to deeper integration.
- The Commission has promised to counter such practices; Koen Lenaerts, president of the European Court of Justice, reminded commissioners they can bring cases against offending member states. The article questions whether the Commission is prepared to take legal action over gold‑plating.
- Deep integration in defense, energy, telecoms, and finance intrudes on core aspects of national sovereignty, complicating harmonization efforts.

### Savings and investment union / capital markets integration
- A true savings and investment union requires harmonization of national insolvency rules, corporate law, aspects of tax law, and promotion of pan‑European pension vehicles.
- The Commission has resurrected the idea of a 28th legal regime as an alternative, first proposed in 2009, but so far has amounted to little.
- The total market capitalization of the bloc’s stock exchanges was about $12 trillion in 2024, or 60 percent of the GDP of the participating countries.
- By comparison, the two largest stock exchanges in the US had a combined market capitalization of $60 trillion, or over 200 percent of domestic GDP.
- Limited EU‑level harmonization in areas such as securities law hampers growth by preventing capital from flowing to its most productive uses.
- Europe has enough savings to finance higher investment: the EU’s household saving rate is about 15 percent of GDP, about three times that of the US.
- Yet Americans invested $4.60 in equity, investment funds, and pension or insurance funds for every dollar invested in such assets by Europeans in 2022.
- Critical reforms suggested include reviewing the prudential regime for insurers and harmonizing oversight of capital markets.

### Banking union and cross‑border banking
- Completion of the EU’s banking union—single banking rule book, a backstop for the Single Resolution Fund, or a common deposit insurance program—has largely dropped from current discussions.
- The article warns that without thriving cross‑border banks to underpin European capital markets, a savings and investment union is unlikely to fulfill its potential.

### Trade environment and global context
- For decades, world trade expanded rapidly as countries lowered tariffs and embraced globalization; since the 2008 financial crisis, trade openness has stopped rising and global imports have leveled off at about a third of GDP.
- Trade tensions have escalated in 2025, with US tariffs in April reaching the highest level in over a century; other countries have responded.
- Trade policy uncertainty is “off the charts,” complicating business planning and raising spillovers for smaller, trade‑reliant countries.
- The recommended strategy is to strengthen resilience and competitiveness at home: rebuild fiscal buffers, maintain price stability, ensure financial soundness, boost productivity, lower barriers to private enterprise, and attract investment.
- It is also important to address internal and external imbalances, particularly large deficits and surpluses.

### Productivity, firm structure, and innovation gaps
- The EU’s total factor productivity (TFP) is about 20 percent below the US level.
- Per capita income in the EU’s largest advanced economies is about 30 percent lower than the US average (GDP per capita difference with the US, purchasing power parity, 2024).
- Europe’s leading companies lag US competitors and are falling further behind over time, especially in tech.
- US‑listed tech firms’ productivity increased by about 40 percent over the past two decades, while European tech firms have seen almost no improvement.
- US firms have tripled their research and development spending to 12 percent of sales revenue—three times European companies’ ratio, which has averaged 4 percent in recent decades.
- Europe has relatively few young high‑growth firms; a future “unicorn” company leaves the EU for the US at a rate that is 120 times faster than the other way around.
- Europe has many small, old, and low‑growth companies: about a fifth of European employees work in microfirms with 10 people or fewer, about double the US figure.
- An average European firm that has been in business 25 years employs about 10 workers, while comparable US companies employ about 70 (Chart 2 findings).

### Demographics and labor mobility
- Europe’s working‑age population is set to shrink by 54 million by the end of this century.
- Scarcity of high‑skilled workers reflects high barriers to cross‑border labor mobility and insufficient human capital for innovative sectors.

### Economic gains from deeper integration
- IMF research shows high trade barriers within Europe amount to an ad valorem cost of 44 percent for manufactured goods and 110 percent for services.
- The EU could raise its GDP by 7 percent if it reduced internal barriers for goods trade and multinational production by 10 percent.
- The 2004 enlargement raised GDP per person in accession countries by more than 30 percent relative to a no‑accession counterfactual; for countries already in the EU, GDP per person is 10 percent higher than it would have been without expansion (Beyer, Li, and Weber 2025).

### Political economy, trust, and institutional challenges
- A lack of trust between member states and in EU institutional processes complicates integration; the “unity‑ambition dilemma” leads the bloc to seek unanimity even when not strictly needed.
- Some key players in pan‑European initiatives lie outside the EU (notably Britain), suggesting coalitions of the willing and improvised intergovernmental arrangements as possible paths forward—though they risk new legal complexities and fragmentation.
- Strategic sectors excluded from full integration from the start (energy, finance, communications) now carry greater importance given geopolitical shocks.

### Policy recommendations and priorities
- Prioritize lowering internal trade barriers, particularly in services, to incentivize R&D and high‑risk, high‑reward investments.
- Advance capital market integration: harmonize securities law, review prudential regimes (including insurers), and harmonize oversight of capital markets.
- Complete the banking union: single rule book, resolution fund backstop, common deposit insurance to support cross‑border banking and capital markets.
- Match EU‑level ambition with national reforms in labor markets, human capital, and tax policy to promote growth.
- For advanced economies: deregulate product markets, deepen credit and capital markets, and promote innovation.
- For central, eastern, and southern European countries: invest in skilled labor, remove red tape, and improve governance.
- Strengthen macroeconomic fundamentals: rebuild fiscal buffers, secure price stability, and ensure financial soundness to provide certainty to investors.

*Alfred Kammer, director of the IMF’s European Department; Simon Nixon, Wealth of Nations newsletter (selected commentary).*

### references

### europe-fd-june25 - references

### Key references cited
- Adilbish, O., D. Cerdeiro, R. Duval, G. Hong, L. Mazzone, L. Rotunno, H. Toprak, and M. Vaziri. 2025. “Europe’s Productivity Weakness: Firm-Level Roots and Remedies.” IMF Working Paper 25/40, International Monetary Fund, Washington, DC.
- Beyer, R., C. Li, and S. Weber. 2025. “Economic Benefits from Deep Integration: 20 Years after the 2004 EU Enlargement.” IMF Working Paper 25/47, International Monetary Fund, Washington, DC.
- Hodge, A., R. Piazza, F. Hassanov, X. Li, M. Vaziri, A. Weller, and Y. Wong. 2024. “Industrial Policy in Europe: A Single Market Perspective.” IMF Working Paper 24/249, International Monetary Fund, Washington, DC.
- International Monetary Fund (IMF). 2024. Regional Economic Outlook for Europe: A Recovery Short of Europe’s Full Potential. Washington, DC, October.

### Single market, integration, and industrial policy
- Finding: A fully integrated single market can deliver both more growth and more resilience.
- Recommendation: Countries must coordinate industrial policies or, better still, agree to set them at the EU level (Hodge and others 2024).
- Caution: Industrial policy should correct market failures—by pushing companies to become greener or to take up transformative technologies—but protecting mature industries from sweeping structural transformation is not sensible.
- Resilience channel: Greater market integration increases risk sharing—companies serving more customers in more countries and diversified personal investment portfolios are less affected by domestic shocks; diversification remains limited compared with the US.

### Germany — diagnosis and policy recommendations
- Key facts and figures:
  - Germany’s economy has grown by just 0.1 percent since 2019.
  - Over the same period, the US economy has grown by 12 percent and the euro area as a whole by 4 percent.
  - The German Council of Economic Experts expects potential output to increase by only 0.4 percent per year for the next two years.
  - In the next 10 years, 20 million workers are expected to retire while only 12.5 million enter the labor market.
  - Venture capital in Germany grew from an average of 0.02 percent of GDP in 2011–13 to almost 0.09 percent in 2021–23.
  - Estimates by the International Energy Agency point to a potential doubling of global electricity demand from data centers between 2022 and 2026.
  - The incoming government has exempted defense spending above 1 percent of GDP from the “debt brake.”
  - NATO defense spending target cited as 2 percent.
- Diagnosis:
  - Legacy-sector concentration (automotive, mechanical engineering, chemical) limits diversification into high-tech sectors.
  - Financial system bias: Too much capital allocated by the banking sector and too little to innovative and higher-risk businesses; fewer and smaller venture capital funds compared with the US or Asia.
  - Labor shortages and demographic pressure: aging population reduces workforce participation and hours worked.
  - High labor costs and rising unit labor costs have eroded price competitiveness.
  - Employment stability measures such as “short-time work” have slowed structural change and reallocation.
  - Manufacturing has been in continuous decline since 2018; energy-intensive industries’ output declining since start of 2022.
  - High energy prices remain elevated relative to the US and many neighboring European countries, reducing attractiveness for energy-intensive industries (e.g., data centers).
- Policy recommendations:
  - Push for greater European integration in goods, services, capital, and energy markets to allow firms to scale and access almost 500 million consumers.
  - EU Commission priority: remove nontrade barriers to trade in goods and services and coordinate harmonization of national regulation.
  - Coordinated European energy build-out to reduce system costs and increase efficiency of energy trading; adopt a European perspective rather than purely domestic.
  - Build stronger and more integrated capital markets:
    - Improve and harmonize national insolvency regimes to make valuing assets across EU borders easier.
    - Strengthen and reform the European Securities and Markets Authority.
    - Increase venture capital funding at the European level by channeling resources to the European Investment Fund or the European Tech Champions Initiative.
    - Encourage German households to shift saving vehicles away from savings accounts toward broadly diversified stock market investment.
  - Use fiscal space strategically:
    - Special fund for infrastructure and exemption of defense spending above 1 percent of GDP from the debt brake are positive steps, but reforms should address design flaws of the debt brake (lack of transition phases; rules do not account for overall debt-to-GDP ratio).
    - Allow gradual and orderly reduction of the structural deficit after crisis years rather than immediate reinstatement of the debt brake.
    - Defense spending to reach the 2 percent NATO target should come from the core budget to avoid creating space for consumptive expenditure.
  - Address labor shortages:
    - Increase workforce participation (e.g., supply high-quality childcare to raise hours worked by mothers; about one in two women currently work part-time).
    - Restrict early retirement and link the standard retirement age to longer life expectancy.
    - Speed up administrative immigration processes and extend the Western Balkans Regulation to additional countries to attract skilled foreign workers.
  - Prioritize future-oriented public investment in infrastructure, defense, and education to strengthen long-term competitiveness rather than masking structural weaknesses.

### Poland — transformation outcomes and lessons
- Key facts and figures:
  - Poland’s per capita income rose from $13,100 in 1990 to $47,100 today in real terms (a 3.6 times increase).
  - This year Poland is set to grow almost 4 percent.
  - Since 1989, Polish GDP has grown by 220 percent in real terms.
  - Unemployment has dropped from double-digit rates in the 1990s to less than 3 percent today.
  - Poland’s higher-education sector now comprises over 350 universities and colleges.
  - Poland ranks 23rd in the World Bank’s Human Capital Index and 24th in the Penn World Tables’ human capital index; it surpasses the EU average in Program for International Student Assessment performance.
  - Between 2004 and 2023, Poland attracted over $310 billion in foreign investment, almost half of the total of the eight states that joined the EU in 2004.
- Drivers of success:
  - Well-implemented systemic and structural reforms combined with societal engagement and human capital development.
  - Education expansion supplying specialists and competent workforce for public and private sectors.
  - Accession to international organizations (WTO, OECD, NATO, EU) secured integration, investment attraction, and technology transfer.
  - EU membership, single market access, and cohesion policies were key drivers of convergence and development.

*Content derived from europe-fd-june25 - references*

### 2004. Inward investment plays a dual role: bridg-

### europe-fd-june25 - 2004. Inward investment plays a dual role: bridg-

### Poland — EU integration, investment, and digital leap
- Inward investment roles:
  - Bridging Poland’s capital gap.
  - Facilitating technology transfer and job creation.
- Trade and technology outcomes since EU accession:
  - Polish exports of goods and services have increased nearly 3.5 times.
  - Technological sophistication has steadily improved; Poland has an edge in middle-technology goods and a consistent surplus in service exports.
  - European integration has boosted Poland’s GDP by 40 percent compared with a hypothetical scenario in which Poland never joined the EU (estimate from the Polish Economic Institute).
- Digitalization and finance:
  - Early adoption of broadband internet and modern network infrastructure.
  - Financial sector leapfrogged legacy systems to modern IT solutions.
  - State digitalization: digital IDs, automated tax filing, and various governmental services online.
- Emerging priorities and strategic shifts:
  - New challenges: the energy transition, capital market development, advancing technological sophistication, and providing greater security after Russia’s invasion of Ukraine.
  - Poland transitioning from primarily a net recipient of EU funds to taking on a greater financial role within the EU budget and contributing to the single market through trade.
  - Poland has surpassed China as an export market for German products; Polish industry supplies goods to all Europe.
- Policy emphasis:
  - “Europe needs deregulation and economies of scale first and foremost.”
  - Need to complete the single market to allow European companies to scale-up.

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### EU single market barriers and energy competitiveness
- Measured barriers:
  - IMF estimates: nontariff barriers within the single market are equivalent to a 44 percent tariff on industrial goods and a 110 percent tariff on services.
- Energy transition concerns:
  - European industry faces electricity and gas prices up to three times higher than those of main trading partners (the US and China).
  - Properly executed decarbonization is essential for environmental reasons and for capturing competitive advantage from the clean-industry value chain.

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### Greece — fiscal consolidation, banking cleanup, and structural reform
- Macroeconomic and fiscal performance:
  - Fiscal policy delivering increasing primary surpluses.
  - Public debt has decreased almost 55 percentage points of GDP (characterized as one of the steepest declines Europe has ever seen).
  - Primary surplus reached 4.8 percent of GDP in 2024, leading to an overall budget surplus of 1.3 percent in that year.
  - Tax compliance effort estimated to have increased revenues by almost 3 percent last year.
- Banking and financial sector:
  - Cleaned up balance sheets and curbed nonperforming loans; lenders are regaining their essential role in financing the real economy.
  - Deposits have increased steadily; profitability has strengthened capital adequacy ratios.
  - Successful sale by the Hellenic Financial Stability Fund of its holdings in local banks attracted long-term foreign investors.
- Structural reforms and incentives:
  - Reduced taxes and social security contributions; simplified licensing procedures; modernized labor legislation.
  - Incentive framework for research and innovation includes amortizations of up to 315 percent for R&D expenses.
  - Privatizations generating public revenue and unlocking investment and job creation.
  - State-of-the-art insolvency framework classified by the OECD as meeting best international practice.
- Remaining challenges and projections:
  - Debt-to-GDP ratio remains high but with favorable structure and interest rate provisions.
  - Inflation remains sticky, particularly in the services sector.
  - Investment lags the EU average; productivity and labor market participation (particularly among women) remain below the EU average.
  - Fiscal plan: aim to maintain primary surpluses close to 2.5 percent of GDP over the next few years; debt-to-GDP ratio projected to decline by an additional 20 percentage points by 2028.
- Policy priorities:
  - Strengthen tax compliance; consider growth-friendly tax reductions for labor and businesses if fiscal space allows.
  - Simplify business regulation; improve state administrative capacity; remove market entry barriers in services.
  - Speed up delivery of justice through legal reforms and advanced technologies; implement the National Cadastre and complete local and regional urban plans.
  - Strengthen competition in banking and expand financing options beyond traditional bank lending, including capital market development, venture capital, and private equity.
  - Optimize use of EU funds; invest in renewable energy and electricity grids; upskilling initiatives.

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### Spain — post-crisis recovery, labor market reforms, and green transition
- Crisis response and outcomes:
  - COVID-19 shock led to an 11 percent drop in economic output in 2020.
  - Policy response included furlough programs that supported nearly 3.4 million workers at their peak and public credit lines that bridged liquidity needs of over 674,000 mostly small- and medium-sized firms.
- Growth and fiscal performance:
  - Spain was the world’s fastest-growing major developed economy in 2024, contributing about half of the overall growth in the euro area while representing only a tenth of its GDP.
  - Spain’s 2025 IMF growth projection was the only major advanced economy to be revised up in April.
  - Fiscal discipline: budget deficit down by 7 percentage points and below the EU’s official threshold of 3 percent for the first time in six years.
  - Debt-to-GDP ratio has dropped by more than 22 percentage points from its pandemic peak in 2021, inching closer to 100 percent.
- Labor market and social inclusion:
  - 2021 labor reform broadened permanent hire options; Spain generated more new employment than France and Germany combined last year.
  - Two-thirds of new workers in 2019–24 were foreign-born, mostly from Latin America.
  - Job creation in high-value sectors such as information and communications technology expanded at twice the pace of overall employment over the past two years.
  - Minimum wage increases totaling 61 percent since 2018; Spain has the lowest wage inequality among developed economies (International Labour Organization).
  - Policies like “minimum vital income” contributing to greater economic equity.
- External resilience and investment:
  - Highest-ever balance of payments surplus last year, equivalent to 4.2 percent of GDP.
  - Spain welcomed a record 84 million visitors last year.
  - Non-tourism exports including financial services, IT, and professional consulting generated more than €100 billion last year.
  - Between 2018 and 2024, Spain was the world’s fifth-largest recipient of greenfield projects.
- Green and digital transitions:
  - Renewable share of electricity generation increased from just over 20 percent in 2019 to 56 percent last year.
  - Central bank attributes a 40 percent reduction in electricity prices to this change in the energy mix.
  - Spain has already invested almost €50 billion in the green and digital transitions.
  - Recovery funds expected to add 3.4 percent to GDP by 2031 compared with a no-plan counterfactual.
- Policy priorities:
  - Continue reducing unemployment, improve training and alignment with business needs, lower inequalities, and promote equitable opportunities.
  - Address housing affordability for young people.
  - Maintain fiscal responsibility while protecting the welfare state.

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### Europe’s elusive Savings and Investment Union (SIU) — fragmentation and policy needs
- Rationale and goals:
  - SIU: a pan-European financial market to mobilize and channel savings across the EU to investment.
  - Complement the single market in goods and reduce dominance of bank financing in favor of long-term capital market financing.
- Historical and recent developments:
  - Earlier initiative: EU Capital Markets Union launched in 2015; politically contentious with limited progress.
  - Renewed impetus after 2024 reports by Mario Draghi and Enrico Letta and the European Commission’s March 2025 SIU strategy.
- Key obstacles and measurements:
  - Savings remain largely domestic; about 80 percent are in bank deposits and banks do not normally lend these deposits across national borders.
  - EU banking union remains incomplete; bank resolution still largely national.
  - Low issuance of securitized assets due to lack of uniform regulation and high capital charges.
  - Institutional holders face high capital charges from EIOPA; pensions are not portable across the EU.
  - EU houses less than 15 percent of start-ups valued at more than $1 billion.
  - EU scale-up firms raise 50 percent less capital on average than US counterparts in their first 10 years (EIB).
  - IMF estimates remaining intra-EU trade barriers equivalent to an ad valorem tax of 45 percent for manufacturing and up to 110 percent for services.
  - Cost of regulatory compliance: 1.8 percent of sales on average (2.5 percent for small and medium enterprises) per EIB estimates.
- Governance and regulatory reform proposals:
  - Early designs included a common insolvency framework and an EU-issued safe asset (e.g., EU bond); these remain largely unimplemented.
  - Proposal for ESMA as single common regulator and common reporting requirements; progress has been slow and national regulators cede power only gradually.
- Limits of SIU and required complementarities:
  - SIU alone unlikely to generate the roughly 5 percent of GDP per year investment shortfall identified by Draghi.
  - Higher expected returns and competitiveness require simultaneous reforms: deregulation, completion of the banking union, harmonized withholding taxes and insolvency regimes, and reduced trade barriers.
  - Banks remain central to SIU: cross-border mergers and allowing banks to move liquidity where returns are reasonable suggested as starting measures.

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### Europe’s innovation landscape — venture capital, universities, and emerging momentum
- Comparative metrics and challenges:
  - Productivity in US technology firms surged nearly 40 percent since 2005 while stagnating among European companies (IMF research).
  - US R&D spending as a share of sales is more than double Europe’s.
  - No European company ranks among the 10 largest tech companies by market share; SAP (14th) is worth 10 percent of Apple; ASML (15th) has about 10 percent of Nvidia’s market value.
- Venture capital and scale-up gaps:
  - 2024 venture capital: US invested €210 billion in over 15,000 deals versus €57 billion and fewer than 10,000 deals in Europe (Italian Tech Alliance).
  - Largest European markets shrank in 2024: UK from €19 billion to €16.8 billion; France from €9 billion to €7.7 billion. Germany rebounded slightly to €7.4 billion from €7.1 billion.
  - IMF calculations: venture capital funds raise seven times more in the US than in the EU.
- Market fragmentation effects:
  - 60 percent of EU exporters and 74 percent of innovators report having to comply with significantly different regulations across EU countries (EIB survey).
  - Remaining intra-EU trade barriers estimated as equivalent to an ad valorem tax of 45 percent for manufacturing and up to 110 percent for services (IMF estimates).
- Positive developments and policy actions:
  - European Investment Bank (EIB) invested a record €19.8 billion in high-risk digital and innovation companies in 2024; €14.4 billion came from the European Investment Fund (EIF), half as equity.
  - EIB doubled capital investment in security and defense tech companies.
  - Spain’s start-up law (end-2023) boosted investment by 16 percent to €2 billion and mobilized about €3 billion of private funds; law includes tax incentives, favorable stock option treatment, reduced red tape, and new public funding streams including one to support women entrepreneurs.
  - Commitments on AI funding: France promised €109 billion; European Commission president committed to mobilize EU and private funds to reach €200 billion (noted as far short of US $500 billion Stargate Project).
- Role of universities and clusters:
  - University spinouts and ecosystems highlighted: University of Cambridge, ETH Zurich, Technical University of Munich, Delft University of Technology, Aalto University.
  - Examples: ARM (Cambridge), Feedzai (Coimbra) monitors $6 trillion in payments annually; Feedzai-led initiative launched 12 start-ups raising $412 million.
- Policy emphasis:
  - Need to translate words into action quickly: harmonize regulation, reduce red tape, increase venture capital, and support scale-up financing.

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### Aging populations and the “Longevity Dividend” — health, employment, and policy reframing
- Demographic trends:
  - One in ten people worldwide are now over 65; that proportion is projected to double over the next 50 years (Chart 1; UN World Population Prospects 2024, medium-fertility scenario).
  - In Europe, 90 percent of the increase in workers in the past decade—17 million more people in employment—came from a jump in workers over 50 (OECD).
- Reframing aging:
  - Two recommended reframes:
    - Stop seeing aging only as a problem; treat longer, healthier lives as an opportunity.
    - Shift focus from changing individual behavior to helping each person adapt to greater life expectancy.
- Health and prevention focus:
  - Chronic noncommunicable diseases now account for 60 percent of the disease burden globally, and 81 percent in the European Union.
  - Healthy life expectancy has not grown as fast as overall life expectancy, causing an expansion of morbidity.
  - Advances and opportunities: structural risk and genetic data, GLP-1 drugs (Ozempic and Wegovy) demonstrating disease postponement, and potential future geroscience therapeutics.
  - Investment needs: increased investment in life sciences and biopharmaceuticals; promising areas include improved vaccines for older people, cancer therapies, synthetic biology, and genomics.
- Life-course and financing implications:
  - Advocate a life-course approach to health starting in childhood and no later than middle age.
  - Make measures of healthy life expectancy a key metric for allocating health expenditure.
  - Financing prevention will likely require either more government debt or innovative financing such as social impact bonds.
  - Digital innovation, robotics, and AI can aid care and personalized prevention if accompanied by investments in digital literacy.
  - Tackling socioeconomic determinants of health (poverty, food, housing) is essential.
- Employment and labor-force participation:
  - Nearly 90 percent of Europeans in their late 40s are in the labor force; participation falls below half by early 60s.
  - Raising the state retirement age helps public finances but does little alone to keep individuals working longer.
  - Policies needed across ages: health, skills, and creation of age-friendly jobs (flexible hours, fewer physical demands, greater autonomy).
  - Evidence: A 20 percent reduction in the incidence of six major chronic diseases increases GDP 1 percent within five years and 1.5 percent in ten years in UK evidence (Schindler and Scott, forthcoming); effect strongest for ages 50 to 64.
  - Preventive health pays macroeconomic dividends by increasing labor-force participation and reducing exits due to illness (example: someone diagnosed with cardiovascular disease at age 50 is 11 times more likely to leave employment in the UK).
- Policy message:
  - Invest in later-life human capital and redesign health, education, work, and financial systems to seize a three-dimensional longevity dividend of longer, healthier, and more productive lives.

*Italic: Content unit provided by the source PDF.*

### references

### references

### References
- Omran, A. R. 1971. “The Epidemiologic Transition.” Mil‑bank Memorial Fund Quarterly 149: 509–38.
- Schindler, Y., and A. J. Scott. Forthcoming. “The Macro‑economic Impact of Chronic Diseases in the United King‑dom.” Journal of the Economics of Ageing.
- Scott, A. J. 2024. The Longevity Imperative: How to Build a Healthier and More Productive Society to Support Our Lon‑ger Lives. New York: Basic Books.

*Source: europe-fd-june25 - references (PDF).*

### 155.8 million, Japan with 18 million, Russia with 7.9

### europe-fd-june25 - 155.8 million, Japan with 18 million, Russia with 7.9

### Population decline patterns and projections
- Cumulative population declines (2025–50) highlighted:
  - China: 155.8 million
  - Japan: 18 million
  - Russia: 7.9 million
  - Italy: 7.3 million
  - Ukraine: 7 million
  - South Korea: 6.5 million
- Highest average annual rates of population decline:
  - 0.9 percent in Moldova and in Bosnia and Herzegovina
  - 0.8 percent in Albania, Bulgaria, and Lithuania
  - 0.7 percent in Latvia and Ukraine
- Demographic comparisons and historical context:
  - Moldova’s population has fallen by roughly 1 percent annually since 2000.
  - During the Black Death of 1346–53, Western Europe lost upward of a quarter of its population, corresponding to an average annual rate of population decline of 4 percent or more.
- Fertility and migration interaction:
  - In 6 of the 21 countries with average fertility rates of less than 2.1 and fewer births than deaths during 2000–25, immigration prevented depopulation.
  - The link between fertility rates of less than 2.1 and depopulation is not ironclad; migration can offset natural decline.
- Aging projections (shares of population ages 65 and older):
  - In countries experiencing population declines: from 17.3 percent in 2025 to 30.9 percent in 2050.
  - In countries not shrinking: from 3.2 percent in 2025 to 5.5 percent in 2050.

### Challenges of low fertility and depopulation
- Economic and social impacts:
  - Fewer births and smaller populations mean fewer workers, savers, and spenders, potentially sending an economy into contraction.
  - A shortage of researchers, inventors, scientists, and other people-based sources of innovative ideas could hurt economic progress.
- Innovation and demographic effects:
  - Charles Jones (2022) argues that low fertility implies a drop in the number of new ideas, which could strangle innovation and result in economic stagnation.
  - Younger people tend to drive innovation; older people work and save less and create significant burdens through long-term care needs and spending on health and economic security.
- Geopolitical and military implications:
  - Slow or negative population growth relative to other countries may translate into less military might and political clout (historical example: some historians attribute France’s 1871 defeat in the Franco-Prussian War to low fertility and slow population growth).

### Economic opportunities and human capital considerations
- Potential offsetting forces from smaller populations:
  - Less need for spending on housing and childcare could free resources for research and development, adoption of advanced technologies, and elevation of education quality.
  - Declines in fertility can stimulate growth by driving up labor force participation (especially among women), savings, and capital accumulation—this phenomenon after the post–World War II baby boom contributed as much as 2–3 percentage points to per capita income growth.
- Role of human capital:
  - The number of healthy and well-educated people matters more than population size for knowledge creation and innovation.
  - Oded Galor’s argument: falling fertility and rising education will lead to human capital formation and long-term increases in prosperity.
- Environmental and welfare aspects:
  - Population decline may enhance social welfare by reducing environmental pressures such as land, air, and water pollution; climate change; deforestation; and loss of biodiversity.

### Adaptation, policy options, and restructuring
- General guidance:
  - There is nothing intrinsically wrong with an economy expanding or shrinking along with its population; the policy concern centers on side effects like declining per capita GDP, stagnating innovation and growth, and challenges of supporting an aging population.
  - Effective fertility policies are notoriously difficult to come by; falling birth rates may reflect societal preferences.
- Examples of policy responses already pursued:
  - South Korea reported a rise in fertility rates for the first time in nine years.
  - China abolished its one-child policy.
  - Japan introduced flexible work arrangements.
  - Several European countries are overhauling their social security systems to ensure sustainability.
- Family-friendly policies to encourage fertility (examples listed in source):
  - Tax breaks for larger families
  - Extended and more flexible parental leave policies
  - Public or subsidized private childcare
  - Subsidies for infertility treatment
- Complementary policies and structural changes:
  - Gains in education access and quality to enhance innovation capacity.
  - Retirement policy changes such as raising the age of retirement to remove disincentives to working longer.
  - Combined policies (fertility, health, education, retirement) may be stronger in combination than in isolation.
  - Robust investments in the health and education of youths and prime-age adults to enable productive work well past traditional retirement age.
- Consideration of technology and labor-market evolution:
  - Policymakers must account for digitalization, robotics, automation, and artificial intelligence, which will affect job types, job performance, social interaction among workers, and potentially fertility patterns.

### AI, judgment, and inequality (feature included in source)
- Two empirical findings on AI’s heterogeneous impact:
  - In research on scientists, the output of the top decile was 81 percent higher with AI than without.
  - In a study of call center employees, novice and low-skilled workers saw a 34 percent improvement; AI tools increased productivity by 14 percent on average in that study.
- Mechanism: prediction versus judgment
  - When AI improves prediction and judgment is scarce and high-stakes (scientific research), higher-skilled workers disproportionately benefit.
  - When AI substitutes for prediction in low-stakes tasks (call centers), lower-skilled workers can benefit disproportionately.
- Geographic and distributional implications:
  - AI may amplify productivity and earnings where judgment-intensive tasks concentrate (e.g., scientific research, medical diagnostics), reinforcing dominance of innovation hubs.
  - In prediction-intensive industries, jobs may shift toward lower-wage regions, potentially reducing income disparity in those sectors.
- Policy recommendations to manage AI’s distributional effects:
  - Expand access to high-quality education and training emphasizing complex decision-making skills to sharpen judgment.
  - Promote global talent mobility and knowledge exchange to distribute judgment capacity more broadly.
  - Create incentives (funding, infrastructure, AI adoption incentives) to spread the ability to generate valuable AI predictions beyond traditional power centers.

*Source: JUNE 2025, F&D Special Report*

### references

### References

### Bibliographic citations
- Agrawal, Ajay, Joshua Gans, and Avi Goldfarb. 2018. Prediction Machines: The Simple Economics of Artificial Intelligence. Boston, MA: Harvard Business Review Press.
- Brynjolfsson, Erik, Danielle Li, and Lindsey R. Raymond. 2023. “Generative AI at Work.” NBER Working Paper 31161, National Bureau of Economic Research, Cambridge, MA.
- Toner-Rodgers, Aidan. 2024. “Artificial Intelligence, Scientific Discovery, and Product Innovation.” ArXiv preprint, Cornell University, Ithaca, NY.

### Migration history — key facts and chronology
- Human migration began at least 300,000 years ago.
- About 65,000–70,000 years ago, early humans ventured into the Middle East and then into Asia and Europe.
- Over 25,000 years ago, before the end of the last ice age, humans crossed from Siberia into the Americas.
- About 6,000 years ago in Eurasia, horses were domesticated; the wheel and cart followed, facilitating longer journeys with plants and animals.
- The Columbian Exchange began in the decades following 1492 and involved irreversible cross-pollination of crops, animals, commodities, diseases, technologies, and ideas between the Americas and other continents.
- In 1519, ships with little more than 600 Spaniards landed on the coast of Mexico; within a century the 20 million inhabitants of the Aztec empire were reduced to just over a million.
- The age of mass migration (mid-19th century to start of World War I in 1914) saw millions of European migrants cross the Atlantic; migration was encouraged by host governments and facilitated by steam and rail.
- The abolition of slavery in Britain and its colonies in 1836 and in the United States in 1865 shifted labor dynamics toward attracting voluntary migrants and indentured laborers.

### Modern and historical migration impacts
- Immigrants in the United States account for a disproportionately large share of intellectual leadership, including Nobel laureates, Oscar-winning directors, and founders of unicorn start-ups valued at more than $1 billion.
- Immigrants to the United Kingdom make up a third of authors awarded the Booker Prize.
- Migrants send home over $1 trillion a year in remittances, exceeding aid and investment flows combined for many developing economies.
- The immense upheaval of World War II left millions of refugees stranded; in addition to 40 million civilians killed, at least 11 million refugees found themselves outside their country of origin.
- In 1947 the partition of India and Pakistan forced about 18 million people to move between the new territories.
- By May 1948, when Israel declared independence, the Jewish population had grown to about 1.2 million after hundreds of thousands migrated from Europe and elsewhere.
- The Soviet Union comprised 15 states and spanned a geographic expanse roughly two and a half times the size of the US; in 1991 the USSR collapsed into 15 former Soviet socialist republics.

### Migration trends and contemporary statistics
- The number of migrants worldwide nearly doubled from 153 million in 1990 to 281 million in 2020.
- The world’s population has increased by almost 3 billion in the past 30 years, so the proportion of people migrating has remained relatively constant.

*Source: europe-fd-june25 - references (PDF).*

### 3.6 percent of recorded citizens were born in a dif-

### europe-fd-june25 - 3.6 percent of recorded citizens were born in a dif-

### Migration, demographic trends, and projections
- "3.6 percent of recorded citizens were born in a different country; 30 years earlier, it was 2.9 percent."
- Global population growth history:
  - "2.5 billion people in 1950"
  - "5.3 billion in 1990"
  - "today’s 8 billion"
- Population projections and trajectory:
  - "The world’s population is expected to approach 9.5 billion in the middle of this century, then fall to below current levels by the end of it."
- State formation and migration classification:
  - "There are more than 50 new countries since World War II... People who previously moved within these countries are now regarded as international migrants."

### Motives, behaviors, and outcomes of migrants
- Motivations and sacrifices:
  - "Migration is often an enormous sacrifice made on behalf of others."
  - "In many poor communities the eldest sons or daughters are encouraged to migrate to support their families."
- Refugees and displaced people:
  - "Refugees and other forcibly displaced people tend to stay as close to home as possible so that they can return when it is safe to do so."
- Return migration statistics and reasons:
  - "Anywhere from a fifth to half of migrants return home or move to a third country within five years."
  - Possible reasons for return: "saved money; gained a qualification; or are coming back to settle, raise a family, or retire."
- Broader framing:
  - "Migrants are prepared to take risks and make sacrifices. These qualities prevented the extinction of our species during its early evolution... They lie at the heart of the extraordinary progress made by humans ever since."

### Agustín Carstens — career highlights and policy contributions
- Career arc and roles:
  - Roles at the IMF, Mexico’s central bank and finance ministry, and the Bank for International Settlements (BIS).
  - At the time of writing: "At the end of June, Carstens will finish his term as the head of the Basel, Switzerland–based 'bank for central banks,' passing the torch to Spaniard Pablo Hernández de Cos. He will be 67 years old."
- Crisis experience and practical policymaking:
  - Early Mexico experiences with inflation and exchange rate crises (1982; "devalued the peso three times and nationalized the financial system").
  - Involvement in the 1994 Tequila Crisis and the later $50 billion bailout organized by the US.
  - As finance minister (late 2006 onward) implemented fiscal reforms, pension, banking, and energy legislation and "shielded Mexico from the effects of the 2008 global financial crisis."
- Advocacy for precautionary lending and institutional change:
  - Pushed IMF to lend to prevent crises, not only to fix them; promoted "no-strings precautionary lending."
  - Outcome: in March 2009 the IMF rolled out the Flexible Credit Line (FCL); "Mexico signed up for the first FCL, worth $47 billion."
  - Quote: "The IMF used to be the emergency room doctor that would rarely give good news... the Fund will take a more active role in preventing balance of payments crises."
- BIS leadership and Innovation Hub:
  - Launched the Innovation Hub to "foster a start-up culture inside the almost 100-year-old institution."
  - Appointed Benoît Cœuré to lead the Hub; Hub composition and output:
    - "The Hub grew quickly, reaching more than 100 employees and seven centers around the world in five years, mixing macroeconomists with software engineers, blockchain experts, and data scientists."
    - "It has conducted about 40 projects to test new technologies, from tokenization to using AI to improve economic analysis."
  - Notable projects and timelines:
    - Project Nexus: "created a prototype platform to interconnect domestic retail payment systems." Countries developing it for commercial use: "India, Malaysia, the Philippines, Singapore, and Thailand" with target "by 2027." Expected reach: "It will allow 500 million people across the five countries to send money back and forth as easily as Americans use Venmo or Brazilians use Pix."
    - Project Agorá: "aims to test new technologies, such as tokenization, within the existing financial system." Participation: "Over 40 financial institutions and leading central banks—the Federal Reserve Bank of New York, Bank of England, Bank of Japan, among others—joined it."
- Monetary-policy orientation and lessons:
  - Warned about a global shift "from low to high inflation" (2022 BIS report).
  - Policy advice: "reduce the reliance on tools that are difficult to adjust. Quantitative easing generated a lot of liquidity and expansion but was very difficult to rein in."
  - On forward guidance: "should also be used more sparsely." Recommendation: "To better transmit a sense of uncertainty, central banks should maybe rely more on stress scenarios."
  - View on structural change: "What we are witnessing today is a structural change in the world economy and in the relationships between countries."

### Technology, AI, and policy risks (Simon Johnson interview highlights)
- Central concern:
  - Risk that technology and AI become controlled by a small group with narrow visions, producing "a 'vision oligarchy.'"
- Distribution of global AI spending (excludes China due to data limitations):
  - "95 percent of the money being spent on AI development is in the US, 3 percent in Europe, and 2 percent in the rest of the world."
- Socioeconomic risks and mechanisms:
  - AI could amplify inequality by favoring improvements in productivity for highly educated workers rather than boosting the productivity of less-educated workers.
  - Consequences include wider inequality, political populism, and threats to democratic institutions: "The big concern if we continue down the road of widening inequality... is that greater anger fuels forms of populism."
- Policy and governance prescriptions:
  - Foster broader debate and engagement about "what is AI? What is being built with AI? That’s a vision."
  - Push technology in a "pro-worker direction"—"Boosting the productivity of people without a lot of education is key in the US and around the world."
  - Consider regulatory "guardrails around Big Tech’s activities" and prepare "policies and safeguards" to prevent systemic harms similar to the finance sector’s pre-2008 buildup.
  - Democratize the vision-setting process: "That terrain should be contested. People should understand the stakes... do we want 1 or 2 or 10 people to drive the discussion, or do we want more engagement and a broader conversation?"

*Italic: Source — Finance & Development, June 2025 (content unit: europe-fd-june25 - 3.6 percent of recorded citizens were born in a dif-).*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2025/06/europe-fd-june25.pdf_