Thank you very much to the two student associations, HEC European Horizons and HEC Economic Advisory, and to Charlotte Mahnke for the invitation. It is a pleasure to be here at HEC tonight.
The last time I was in Paris, in autumn 2025, we launched our latest Regional Economic Outlook for Europe—our biannual assessment of the region’s economic prospects. And I was very happy that some of you participated in that event.
My message then was simple: despite having the people, the technology, and the savings to grow faster, Europe appears to be settling into a path of slow and mediocre medium-term growth.
Tonight, I would like to do two things. First, explain why this is happening. And second, outline what policies could structurally improve Europe’s outlook.
In short, Europe needs to raise productivity and strengthen resilience. Achieving both requires completing the EU Single Market. And this is a project that would require EU-level as well as national reforms.
This means advancing the savings and investment union, reducing frictions to cross-border trade in goods and services, and enhancing labor mobility. It also means integrating Europe’s energy market.
The Russian gas shut-off and the resulting energy crisis in 2022—when energy prices surged and shortages were feared in parts of the EU—is still fresh in our minds. Europe adjusted impressively, and the worst was avoided.
But the underlying vulnerabilities have not disappeared. Europe remains highly dependent on imported fossil fuels. And recent events remind us how quickly energy markets can shift. Following the onset of the conflict in the Middle East, European natural gas prices nearly doubled in just one week, against the background of yet again low gas storage levels.
Stable and affordable energy is essential for Europe in a rapidly changing world. It matters not only for traditional industries but also for the industries of the future—including artificial intelligence.
For that reason, I will spend the second half of my remarks discussing how Europe can build a more integrated and resilient energy system.
The Urgent Need for Single Market Reforms
Let me begin by emphasizing the remarkable success of the European Union as an engine of economic convergence.
EU enlargement has delivered significant gains in living standards. Consider the 2004 accession round. Our estimates suggest that, after 15 years, GDP per capita in the new member states was about 30 percent higher than it would have been otherwise. Existing member states also benefited, with gains of around 10 percent of additional GDP per capita.
However, this convergence engine is now losing momentum.
European growth is falling behind other major economies. One key reason is insufficient scale across several dimensions.
Three trends illustrate the challenge.
First, Europe’s economic weight is declining relative to its peers. In 2010, EU GDP was roughly on par with that of the United States and significantly larger than China’s. Today, a substantial gap has opened up with the United States (Figure 1).
Europe remains prosperous, but its relative position is gradually eroding. This makes sustaining Europe’s social model increasingly difficult.
Second, Europe once led in productivity growth but now lags behind. Productivity is the central challenge for Europe’s economy. Both in technology sectors and across the broader economy, the productivity gap with the United States continues to widen.
Third, Europe is producing fewer globally dominant firms. Among companies founded in the last 50 years, U.S. firms overwhelmingly dominate global market capitalization. Europe has far fewer companies that reach comparable scale
These trends are not new. Europe’s productivity challenges have been building for more than a decade. But the urgency of addressing them has increased sharply.
The global environment has changed. The post-second world war economic architecture is evolving, and Europe faces rising geopolitical and economic uncertainties. In this context, a larger and more productive economy would be a key source of economic resilience.
Closing the gap requires action both at the European level and at the national level.
First, Europe must complete the Single Market—particularly in the areas defined by the EU’s four freedoms: the free movement of goods, services, labor, and capital. As I mentioned earlier, energy integration is also a critical component.
Second, national structural reforms, including to complement EU-level reforms to complete the Singel Market, remain essential. These include modernizing labor-market regulations to facilitate worker reallocation, investing in human capital, improving tax systems, and strengthening governance frameworks.
Our research suggests that the potential gains are substantial. If reforms reduced internal EU frictions to levels comparable with those between U.S. states, European productivity could rise by around 20 percent (Figure 4).
Moreover, higher productivity would crowd in up to €800 billion in additional private investment over ten years—roughly 18½ percentage points above baseline. Over time, GDP per capita could increase by around 35 percent.
Deepening the Single Market is not only about growth. It is also about resilience. Unlike some alternative policy approaches—such as large-scale industrial policies—Single Market reforms are beneficial for all member states.
But what does “completing the Single Market” actually mean?
From a personal perspective, the Single Market may already feel largely complete. You can travel freely across the EU, work in other member states, and easily purchase goods from other countries.
Yet economically significant barriers remain.
In intra-EU trades, regulatory barriers are equivalent to a tariff of around 44 percentage points for goods and 110 percentage points for services—two to three times higher than those among U.S. states.
Labor mobility is also much lower. Regulatory and institutional barriers make moving between EU countries roughly eight times more costly than moving between U.S. states.
Financial markets are another area of fragmentation. Europe’s financial system—worth roughly €85 trillion—is divided across 27 national banking systems and relatively small capital markets (Figure 5). This fragmentation limits the supply of risk capital needed to support innovation and growth.
READ MORE: https://www.imf.org/en/news/articles/2026/03/11/sp031126-ak-ie-university-paris
