## Unleashing Europe’s Economic Potential

_IMF News, March 11, 2026_

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**Canonical URL:** [Unleashing Europe’s Economic Potential](https://www.imf.org/en/news/articles/2026/03/11/sp031126-ak-ie-university-paris)

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## Bibliographic details
- Published: March 11, 2026

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### Overview
- 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.

### Why growth is slowing — three illustrative trends
- 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.

### Quantified potential gains from reforms
- If reforms reduced internal EU frictions to levels comparable with those between U.S. states:
  - European productivity could rise by around 20 percent.
  - Higher productivity could crowd in up to €800 billion in additional private investment over ten years—roughly 18½ percentage points above baseline.
  - Over time, GDP per capita could increase by around 35 percent.

### Key structural frictions and magnitudes
- 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.

### Single Market reforms — concrete proposals
- 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:
  - Greater harmonization of legislation; avoid “gold-plating” of EU directives by member states.
  - Introduce a “28th regime” allowing firms to choose a single pan‑European legal system covering areas such as company law and insolvency.
  - Improve labor mobility via mutual recognition of professional qualifications, portability of social security rights, and more flexible housing markets.
  - Advance the savings and investment union to reduce fragmented capital markets and better allocate Europe’s savings to innovative firms.
  - Strengthen governance frameworks, modernize labor-market regulations, invest in human capital, and improve tax systems.

### The case for energy market integration — key facts
- Industrial energy prices in Europe:
  - Since 2000, real energy prices for EU industry have roughly doubled.
  - In 2023 they were about two to three times higher than those in the United States and China.
- 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:
  - 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.
  - Congestion prevents electricity from flowing freely and causes price divergence.

### Energy transition economics and impacts
- Investment implications of meeting EU climate goals:
  - Achieving the EU’s 2035 climate goals implies an increase in aggregate annual investment (public and private) of just around 1 percent of GDP.
  - Revenues from carbon pricing could more than cover the required public investment of 0.5 percent of GDP annually.
- Distributional and industrial effects:
  - Energy-intensive sectors (aluminum, cement, paper, basic chemicals) were notably affected by the 2022 energy shock.
  - Affordable and reliable electricity is critical for future technologies, including artificial intelligence, which requires enormous computing power and electricity.

### Policy recommendations for the energy sector
- Continue rapid expansion of renewable energy capacity (solar, wind, battery storage) given sharply falling costs.
- Build a stronger and more integrated electricity grid to:
  - Allow electricity to flow from regions with renewable surpluses to regions with shortages.
  - Reduce both prices and volatility by smoothing regional price spikes.
  - Improve the efficiency of existing generation capacity; natural gas is likely to remain the marginal electricity price setter for much of the next decade.
- Accelerate cross-border interconnections:
  - New evidence indicates that new interconnections typically reduce wholesale electricity prices by around 5 percent on average.
  - Interconnections can lower prices on both sides of the connection by smoothing occasional spikes.
- Strengthen EU-level coordination and ambition:
  - 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.
  - Develop a comprehensive EU-level strategy covering planning, investment, and market design across member states.
  - Coordinate capacity mechanisms at the European level to generate efficiency gains.
  - Provide stable and credible policy signals to the private sector; maintain the EU Emissions Trading System and predictable rules for long-term investment.

### Implementation and timeline
- 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.

*Source: Opening Remarks by Alfred Kammer, Director, IMF European Department, "Unleashing Europe’s Economic Potential", March 11, 2026.*

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## References

- [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)

_Source: https://www.imf.org/en/news/articles/2026/03/11/sp031126-ak-ie-university-paris_