{ "title": "Unleashing Europe’s Economic Potential", "publication": "IMF News, March 11, 2026", "sourceUrl": "https://www.imf.org/en/news/articles/2026/03/11/sp031126-ak-ie-university-paris", "canonical": "https://www.imf.org/en/news/articles/2026/03/11/sp031126-ak-ie-university-paris", "overlayPath": "/en/news/articles/2026/03/11/sp031126-ak-ie-university-paris/index.md", "summary": "Unleashing Europe’s Economic Potential", "publishDate": "2026-03-11", "sections": [ { "heading": "Overview", "content": "- Speech by Alfred Kammer, Director, IMF European Department, at HEC, Paris — March 11, 2026.\n- Central message: Europe must raise productivity and strengthen resilience by completing the EU Single Market and integrating its energy system.\n- Twofold aim of the speech: explain why Europe’s growth is slowing and outline policies to structurally improve Europe’s outlook." }, { "heading": "Why growth is slowing — three illustrative trends", "content": "- Europe’s economic weight is declining relative to peers; a substantial gap has opened up with the United States since 2010.\n- Europe once led in productivity growth but now lags; the productivity gap with the United States continues to widen.\n- Europe is producing fewer globally dominant firms; among companies founded in the last 50 years, U.S. firms overwhelmingly dominate global market capitalization." }, { "heading": "Quantified potential gains from reforms", "content": "- If reforms reduced internal EU frictions to levels comparable with those between U.S. states:\n - European productivity could rise by around 20 percent.\n - Higher productivity could crowd in up to €800 billion in additional private investment over ten years—roughly 18½ percentage points above baseline.\n - Over time, GDP per capita could increase by around 35 percent." }, { "heading": "Key structural frictions and magnitudes", "content": "- Intra-EU regulatory barriers equivalent to a tariff of around 44 percentage points for goods and 110 percentage points for services.\n- Labor mobility: moving between EU countries is roughly eight times more costly than moving between U.S. states.\n- Financial markets: Europe’s financial system is worth roughly €85 trillion but is divided across 27 national banking systems and relatively small capital markets.\n- Energy-related business concerns: 41 percent of EU firms still view energy costs as a major obstacle to investment.\n- Estimated effect of the 2022 energy shock: reduced the euro area’s potential output by roughly 0.8 percentage points." }, { "heading": "Single Market reforms — concrete proposals", "content": "- EU-level and national reforms are both required to complete the Single Market, focusing on the EU’s four freedoms: goods, services, labor, and capital; and energy integration.\n- Priority reforms and actions:\n - Greater harmonization of legislation; avoid “gold-plating” of EU directives by member states.\n - Introduce a “28th regime” allowing firms to choose a single pan‑European legal system covering areas such as company law and insolvency.\n - Improve labor mobility via mutual recognition of professional qualifications, portability of social security rights, and more flexible housing markets.\n - Advance the savings and investment union to reduce fragmented capital markets and better allocate Europe’s savings to innovative firms.\n - Strengthen governance frameworks, modernize labor-market regulations, invest in human capital, and improve tax systems." }, { "heading": "The case for energy market integration — key facts", "content": "- Industrial energy prices in Europe:\n - Since 2000, real energy prices for EU industry have roughly doubled.\n - In 2023 they were about two to three times higher than those in the United States and China.\n- EU Emissions Trading System: contributes only modestly to the transatlantic price gap; excluding carbon pricing would still leave the transatlantic electricity price gap at over 90 percent of what it is today.\n- Energy price dispersion: in some EU countries, electricity prices are roughly three times higher than in others.\n- Grid congestion and interconnections:\n - As electrification and renewable generation expand, congestion has increased significantly; bottlenecks between peripheral regions and the center have roughly doubled over the past five years.\n - Congestion prevents electricity from flowing freely and causes price divergence." }, { "heading": "Energy transition economics and impacts", "content": "- Investment implications of meeting EU climate goals:\n - Achieving the EU’s 2035 climate goals implies an increase in aggregate annual investment (public and private) of just around 1 percent of GDP.\n - Revenues from carbon pricing could more than cover the required public investment of 0.5 percent of GDP annually.\n- Distributional and industrial effects:\n - Energy-intensive sectors (aluminum, cement, paper, basic chemicals) were notably affected by the 2022 energy shock.\n - Affordable and reliable electricity is critical for future technologies, including artificial intelligence, which requires enormous computing power and electricity." }, { "heading": "Policy recommendations for the energy sector", "content": "- Continue rapid expansion of renewable energy capacity (solar, wind, battery storage) given sharply falling costs.\n- Build a stronger and more integrated electricity grid to:\n - Allow electricity to flow from regions with renewable surpluses to regions with shortages.\n - Reduce both prices and volatility by smoothing regional price spikes.\n - Improve the efficiency of existing generation capacity; natural gas is likely to remain the marginal electricity price setter for much of the next decade.\n- Accelerate cross-border interconnections:\n - New evidence indicates that new interconnections typically reduce wholesale electricity prices by around 5 percent on average.\n - Interconnections can lower prices on both sides of the connection by smoothing occasional spikes.\n- Strengthen EU-level coordination and ambition:\n - Implement the European Commission’s proposed Grids Package and expand grid investment in the EU budget to accelerate permitting, strengthen interconnections, and lower electricity costs.\n - Develop a comprehensive EU-level strategy covering planning, investment, and market design across member states.\n - Coordinate capacity mechanisms at the European level to generate efficiency gains.\n - Provide stable and credible policy signals to the private sector; maintain the EU Emissions Trading System and predictable rules for long-term investment." }, { "heading": "Implementation and timeline", "content": "- Many recommendations echo influential reports; the European Council is setting end of 2027 as a target for completing key elements of the Single Market agenda.\n- The analytical groundwork exists; the primary barrier is implementation requiring political determination and willingness to confront vested interests and institutional inertia.\n\nSource: Opening Remarks by Alfred Kammer, Director, IMF European Department, \"Unleashing Europe’s Economic Potential\", March 11, 2026.\n\n---\n\n\n References\n\n- Alfred Kammer\n- Speeches\n- PRESS CENTER\n- paper\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2026/03/11/sp031126-ak-ie-university-paris" } ], "bullets": [ "[Markdown version](/en/news/articles/2026/03/11/sp031126-ak-ie-university-paris/index.md)", "[Structured JSON version](/en/news/articles/2026/03/11/sp031126-ak-ie-university-paris/index.json)", "[Bundle manifest](/en/news/articles/2026/03/11/sp031126-ak-ie-university-paris/bundle-manifest.json)", "Published: March 11, 2026", "Speech by Alfred Kammer, Director, IMF European Department, at HEC, Paris — March 11, 2026.", "Central message: Europe must raise productivity and strengthen resilience by completing the EU Single Market and integrating its energy system.", "Twofold aim of the speech: explain why Europe’s growth is slowing and outline policies to structurally improve Europe’s outlook.", "Europe’s economic weight is declining relative to peers; a substantial gap has opened up with the United States since 2010.", "Europe once led in productivity growth but now lags; the productivity gap with the United States continues to widen.", "Europe is producing fewer globally dominant firms; among companies founded in the last 50 years, U.S. firms overwhelmingly dominate global market capitalization.", "If reforms reduced internal EU frictions to levels comparable with those between U.S. states:", "Intra-EU regulatory barriers equivalent to a tariff of around 44 percentage points for goods and 110 percentage points for services.", "Labor mobility: moving between EU countries is roughly eight times more costly than moving between U.S. states.", "Financial markets: Europe’s financial system is worth roughly €85 trillion but is divided across 27 national banking systems and relatively small capital markets.", "Energy-related business concerns: 41 percent of EU firms still view energy costs as a major obstacle to investment.", "Estimated effect of the 2022 energy shock: reduced the euro area’s potential output by roughly 0.8 percentage points.", "EU-level and national reforms are both required to complete the Single Market, focusing on the EU’s four freedoms: goods, services, labor, and capital; and energy integration.", "Priority reforms and actions:", "Industrial energy prices in Europe:", "EU Emissions Trading System: contributes only modestly to the transatlantic price gap; excluding carbon pricing would still leave the transatlantic electricity price gap at over 90 percent of what it is today.", "Energy price dispersion: in some EU countries, electricity prices are roughly three times higher than in others.", "Grid congestion and interconnections:", "Investment implications of meeting EU climate goals:", "Distributional and industrial effects:", "Continue rapid expansion of renewable energy capacity (solar, wind, battery storage) given sharply falling costs.", "Build a stronger and more integrated electricity grid to:", "Accelerate cross-border interconnections:", "Strengthen EU-level coordination and ambition:", "Many recommendations echo influential reports; the European Council is setting end of 2027 as a target for completing key elements of the Single Market agenda.", "The analytical groundwork exists; the primary barrier is implementation requiring political determination and willingness to confront vested interests and institutional inertia.", "[Alfred Kammer](https://www.imf.org/en/About/senior-officials/Bios/alfred-kammer)", "[Speeches](https://www.imf.org/en/news/searchnews)", "[PRESS CENTER](http://presscenter.imf.org/)", "[paper](https://www.imf.org/en/publications/wp/issues/2026/03/09/the-eus-energy-transition-574537)", "[https://www.imf.org/en/home](https://www.imf.org/en/home)" ], "alternates": { "markdown": "/en/news/articles/2026/03/11/sp031126-ak-ie-university-paris/index.md", "json": "/en/news/articles/2026/03/11/sp031126-ak-ie-university-paris/index.json", "bundleManifest": "/en/news/articles/2026/03/11/sp031126-ak-ie-university-paris/bundle-manifest.json" }, "generatedAtUtc": "2026-09-26T04:31:18.989Z" }