A United Europe Can Shape the Global Economy

IMF Blog, June 3, 2025

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The European Union must unite to shape today’s global economy, rather than be shaped by it.
Core strengths: high living standards, generous time off for workers, social contracts grounded in solidarity.
Current challenges: trailing China in wealth comparison and the United States in population comparison; falling behind in growth and technological innovation since the global financial crisis.

Growth gap drivers:
- Shrinking workforce.
- Productivity stagnation.
- Rising trade tensions.
- Increased defense spending needs to reduce security dependence on the United States.
Specific country performance:
- Germany’s economy has barely grown since 2019.
- The US expanded 12 times as much as Germany since 2019.
- The US expanded 3 times more than the euro area since 2019.
Demographic pressures: falling fertility and rising longevity create a shrinking ratio of workers to retirees, with special implications for Europe.

Endorsed directions from reports by Mario Draghi and Enrico Letta:
- Boost innovation.
- Support businesses.
- Enhance economic security by consolidating fragmented markets, particularly in defense, energy, telecoms, and finance.
Financial integration:
- A single capital market will only expand the pool of savings if Europe completes its banking union.
- Investment growth requires firms to expect higher returns, which depends on less fragmentation, less red tape, and more uniform regulation across the union.
Germany-specific recommendations (from Claudia Schaffranka and Ulrike Malmandier):
- Build on reforms to the “debt brake” (constitutional cap on public borrowing).
- Open the economy to future-oriented investment.
- Overcome chronic labor shortages.

Poland: cited as a model of successful economic transformation by finance minister Andrzej Domański.
Greece: described by former finance minister Konstantinos Hatzidakis as having turned into one of Europe’s fastest-growing economies following sweeping restructuring.
Spain: highlighted by finance minister Carlos Cuerpo for achieving strong growth and social progress with sustainable public finances.

Alfred Kammer (IMF European Department head): argues the case for closer economic union is more compelling than ever; a stronger single market could deliver faster growth and greater security.
Simon Nixon: raises the question of whether member states will overcome distrust of each other and of EU institutions.
Pierre-Olivier Gourinchas (IMF chief economist): calls for a new global growth compact.
Karen Dynan: offers guidance for economists seeking to influence the policy conversation.
Ajay Agrawal and coauthors: emphasize the role of human judgment in shaping AI’s global impact.
Andreas Adriano: profiles Agustín Carstens, outgoing head of the Bank for International Settlements, in People in Economics.

Europe faces a pivotal moment to revive economic might by uniting around policy reforms that preserve core values of solidarity while enhancing competitiveness, productivity, and security.
The continent can aim to shape the global economy by completing financial and regulatory integration, investing in innovation and labor markets, and consolidating fragmented strategic sectors.

Source: A United Europe Can Shape the Global Economy — June 3, 2025

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