The Europeans Union's growth gap

In March 2000, European Union leaders agreed to the so-called Lisbon Strategy, which envisioned the EU economy surpassing America's by 2010. This won't happen, says Investor's Business Daily (IBD). Although the EU's population and economy is larger than America's, the EU is much less dynamic:

Since 1991, output has grown 27 percent faster in the United States than in the EU – a big difference.

And despite the hundreds of billions of dollars the United States has spent fighting terror since Sept. 11, 2001, the gap is widening.

Comparing gross domestic product (GDP) per capita and GDP growth rates, TIMBRO, a Swedish free-market think tank, found that Europe lags behind the United States.

A study last year by the U.S. Labour Department pegged real per-capita GDP in the United States at $34,960 in 2003, a full 24 percent higher than the $26,698 average in Europe's biggest, richest countries.

EU governments seem to have got the message, says IBD. Earlier this month, the Lisbon Strategy was quietly amended. Gone is the rhetoric about the EU economies overtaking that of the U.S.

In its place is a much more modest and realistic goal: to create lots of new jobs and cut into Europe's chronically high unemployment rate. That rate is now 9 percent and higher in key countries such as Germany.

That means hard work – and even harder thinking, says IBD. The EU welfare state will have to be pared back radically. So will punitive rules that make it expensive for companies to hire workers – and impossible to fire them once they're hired. Equally important, the EU must slash taxes.

The European Union isn't really an economic superpower. It may be large, but it's not dynamic. If it does what's needed, however, it can be both, says IBD.

Source: Editorial, EU's Growth Gap, Investor's Business Daily, February 22, 2005.

For text: http://www.investors.com/editorial/issues.asp?v=2/22

For TIMBRO report: http://www.timbro.com/euvsusa/

For more on International: Institutions and Growth: http://www.ncpa.org/iss/int/

FMF Policy Bulletin/ 01 March 2005