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Structural Challenges for Europe

Edited by Gertrude Tumpel-Gugerell and Peter Mooslechner

The main thrust of the book is that the sharing of mutual experiences is important for generating an acceptable policy mix, both at EU and national levels. The contributors highlight key financial issues, including the role of FDI and of foreign banks in the still ‘under-banked’ acceding countries, the re-launch of social security systems and the fiscal challenges of financing the catch-up process. They also examine the ongoing EU debate surrounding the application of the Stability and Growth Pact in Central and Eastern European Countries (CEECs) and go on to explore the contrasting evidence that some CEECs have shown more extensive privatisation efforts than some EU countries.
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Chapter 3: Structural reforms and competitiveness – will Europe overtake America?

Jan Svejnar


Jan Svejnar1 1. FROM CONVERGENCE TO DIVERGENCE Between the late 1940s and early 1990s, Western Europe and Japan experienced an extended period of gradual catching up with the United States in productivity, technological sophistication and living standards. This trend is well captured in a historical perspective in Figure 3.1, taken from Angus Maddison (1997). In view of this long-term convergence, it was reasonable to project that Western Europe and Japan would by and large catch up and in some respects start overtaking the United States in the late 1990s or early 2000s.2 Yet, the long-term convergence between Western Europe and the United States stopped in the early to mid-1990s.3 Indeed, as may be seen from Figure 3.2, since the early 1990s the European Union’s relative position has weakened in terms of GDP growth, and since the mid-1990s also in terms of GDP per capita (Figure 3.3) and labour productivity growth (Figure 3.4).4 While this change is clearly detectable at the level of Europe as a whole, a number of smaller states of the European Union have done better, on average, than larger states in productivity and employment growth. The Central and Eastern European states that are entering the European Union have a relatively well-educated population, but they will temporarily reduce the average level of performance in the European Union in terms of labour productivity and income per capita. In the long term, they are likely to constitute an important pole of economic growth in the EU. These countries experienced...

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