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European Economy News Issue 9 - Cyprus and Malta: two islands, one currency

The latest issue features the changeover to the euro in Cyprus and Malta.  It also takes an in-depth look at productivity in Europe and the Growth and Jobs Strategy, and profiles the German economy - the biggest in the EU.

The EU is one of the world’s most advanced and productive economies, but needs to constantly upgrade its performance in a competitive world. Something that has featured prominently in the economic debate over many years is its productivity gap with the US. Europe did narrow the gap over most of the second half of the 20th century, catching up particularly fast in the 1950s and 60s, but this trend was interrupted for a decade from the mid-1990s, when the EU’s productivity growth fell behind and America’s surged ahead. This led to concerns about how to maintain and increase Europe’s competitiveness and standard of living. The fact that in the last two years Europe’s productivity growth has started to pick up speed again is therefore a highly welcome development and one which we in DG ECFIN have been analysing closely.

One of our findings is that much of the acceleration in productivity growth is due to the current cyclical upswing. Yet to meet the Lisbon Agenda target of a highly competitive economy, it needs to be made sustainable. There is considerable scope to boost productivity further by promoting innovation, investing in education and training, intensifying ICT diffusion, fostering competition, and streamlining the single market. Some EU Member States and sectors are showing the way and have already achieved high productivity levels – the network industries in particular – while much of the remaining gap is concentrated in just a few sectors, notably services.

The higher economic growth the EU has enjoyed during the last two years has in large part been won through reforms in areas such as labour markets, business regulation and social welfare. Sustaining this growth in the future will only be posible through productivity gains as the population starts to shrink. It is therefore essential that the EU continue to tackle the root causes of low productivity growth.

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16/1/2008

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