The head of the International Monetary Fund on Thursday called on Europe to achieve the full potential of its prized single market, lamenting what she described as a situation that makes the region look like “an ideas supermarket” for the U.S.
Speaking to CNBC’s Karen Tso, IMF Managing Director Kristalina Georgieva said Europe’s economic performance was strengthening and inflation was clearly on a downward trajectory.
Georgieva said that the IMF observing an uptick in consumption and expected interest rate cuts from the European Central Bank spelled out good news for investment in the euro zone. She said it would bolster the 20-member bloc’s economic performance.
“We come with this relatively good news and with a warning: There is no time to waste for the euro zone to concentrate on productivity,” Georgieva said.
“That means two things. One, to achieve the full potential of the single market. It is not there yet. We want to see more labor market flexibility in Europe, we want to see [a] deepening [of] the financial markets, integrating them [and] we want to see the banking union, the capital union in place,” she continued.
“And two, we want to see much more attention to innovation, investing in [research and development], making it possible to have business based on innovation in Europe to materialize in Europe. Right now, Europe looks like an ideas supermarket for the United States,” Georgieva said.
“A lot of what is invented here ends up being commercially viable and on scale over there and when you look at the main obstacle? 27 countries not yet integrated in a single market.”
U.S. productivity gap
The European Union’s single market seeks to guarantee the unrestricted movement of goods, capital, services and labor throughout the territory.
Established more than 30 years ago, the single market is designed to allow EU citizens to live and work across the EU and to provide consumers with a wider choice of high-quality services and products.
The IMF believes deeper single-market integration could further boost the region’s economic growth.
In May, the Washington, D.C.-based institute said in a blog post that an IMF report published in 2023 estimated that reducing remaining barriers to the single market for goods and services by 10% could raise European output by as much as 7 percentage points over the long term.
“The euro area is now focusing on critical questions for the future. Among them, number one, how to lift up productivity at par with competitors, especially with the U.S.,” Georgieva said.
The IMF chief reinforced the fund’s growth outlook for the euro zone, saying the bloc was on track to register a growth rate of 0.8% in 2024, compared with 0.4% in 2023 — and increase by 1.5% next year.
Correction: A previous version of this article misstated the month that the IMF said a 10% reduction would boost European output by up to 7 percentage points.