IMF Working Papers

Europe has a large and persistent per capita income gap with the United States. Deficiencies in total factor productivity, labor utilization, and capital intensity all play a role. While deeper intra-Europe integration is one key element towards closing these gaps, remaining structural domestic policy gaps with respect to most growth-friendly regulatory settings highlight the scope for complementary policy action at the national level. This paper compiles IMF staff’s structural policy priorities for European countries to lift output over the medium term, reviews key implementation challenges, and discusses complementarities with EU-level efforts. While addressing these domestic reform priorities will require overcoming long-standing political economy and—in some cases—technical obstacles to reform, successful implementation could entail sizeable medium-term gains of around 5, 7 and 9 percent for advanced European, Central Eastern and Southeastern European, and Western Balkan economies, respectively.