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Eurozone and US: one step ahead, two steps back

Eurozone and US: one step ahead, two steps back

It is time to change everything. Or in 9 years’ time, our living standards will be at around 60 percent of US ones, as in the ‘60s

It is time to change everything. Or in 9 years’ time, our living standards will be at around 60 percent of US ones, as in the ‘60s

Drive in

No shades of grey, only black and white. Europe is running fast in the economic challenge with US: running backwards, unfortunately, running so fast it makes the unstable US economy seem a locomotive, leading European living standards to be 60% of the US levels in 2023. Worse than in the ‘60s.

Only deep reforms can save Europe. Is there any?

Too optimistic rumours about a possible recovery then? Is the TTIP just sort of an appetizer in the “European menu” served to US? Perhaps, the EU Commission has already decided this primary trade treaty is the last piece of the jigsaw puzzle of some European and national reforms currently planned. Hence, no real risk involved?

Have 5 years of crisis cancelled all the efforts made after the crisis at the end of ‘50s? We were about to hook those American spendthrifts up…and now they say in 9 years’ time our living standards will be only 60 percent of US levels. They are getting ten T-bones. We are getting six. They are enjoying a 10-day holiday. We could have just six of them. And so on.

The exact words used follows: “On the assumption that the euro area and US forecasts underpinning this scenario prove accurate, the euro area is forecast to end up in 2023 with living standards relative to the US which would be lower than in the mid-1960′s. If this was to materialise, euro area living standards (potential GDP per capita) would be at only around 60% of US levels in 2023…”

Weren’t we allied? Peers? Haven’t we been working all together in the UN, determining the faith of the world? We could end up praying a Cincinnati company to give us work in order to earn our living…

According to the EU Commission’s data, the US economy has pulled away from Europe since the mid-1990s. At the time, hourly labour productivity levels in the Eurozone were almost 90 per cent of US levels in the mid-1990s, but they have fallen by 10 percentage points since then and are projected to drop another 6 points to 73 per cent of US levels by 2023. This will be the main driver of the gap, in addition to the unemployment rates and per capita working hours.

As the Commission pointed out, the US emerged from the crisis better than the Eurozone: they will have an annual average potential growth rate of 2.5 per cent over the next 10 years, whilst the Eurozone will average a mere 1 per cent. Per capita growth rates in the Eurozone will be half those in the US.

Marco Buti, Director General of the Economic and Financial Affairs, tries to take the best of this disaster, and writes in his introduction “The encouraging message, however, is that the subdued growth outlook is not ‘set in stone’. The projections reported above are based on a “do nothing” scenario, i.e. assuming that current policies remain unchanged. Policy makers,” warns Buti, “can avoid the dire growth scenario by implementing reforms that contribute to enhancing the economy’s full potential.”