IMF asks European countries not to follow the US example with national subsidies

He International Monetary Fund (IMF) This Friday, he recommended that European countries not promote national subsidies, but instead commit to deepening the common market to strengthen the resilience of their economy and not lose ground to the United States.

In its European regional report, published within the framework of the spring meetings that the IMF is holding this week in Washington with the World Bank (WB), the institution confirms that deploying subsidies at the national level (such as those that the US has promoted with its Inflation Reduction Law)“would undermine the single market” by carrying a “less efficient distribution of resources”.

The IMF’s European director, Alfred Kammer, added at a press conference that subsidies have grown in the European Union at the national level and instead urged progress in unity for growth.

If opting for subsidies, he added, these must be at the European level.

For the IMF, as highlighted in its report, “Low potential growth remains Europe’s Achilles heel. (…) With the exception of Ireland and Luxembourg, per capita income in all advanced economies is now lower than in the United States.”

And that gap is not expected to close unless policies are implemented in this regard.: “Productivity growth has slowed and aging is a big burden.”

The economic organization, based in Washington, estimates that the measures should be aimed at increasing the participation of the active population, preparing workers for the structural changes that are coming, creating an environment conducive to private investment and promoting innovation in level playing field at European level, especially with regard to the ecological transition.

The IMF estimates that the EU’s social capital is 88% that of the United States. The percentage is in the 92% regarding labor input.

In its global economic outlook report, released on Tuesday, the IMF had lowered its eurozone growth forecast for this year by one tenth, to 0.8%and in two tenths that of 2025, until 1.5%with Germany and France as the big burdens and Spain as the exception among the largest economies.

European challenges

In his speech this Friday, Kammer highlighted that the “soft landing” of the European economy is “within reach” but not assured, while its institution makes it clear that although the weakening of growth in the medium term is a global phenomenon, Europe faces unique challenges, such as the aging of the population.

For the IMF, there could be different factors against it. In the advanced European economies, a drop in consumption, while in those of central, eastern and southeastern Europe there would be the persistence of a “high inflation that would require a more restrictive monetary policy that would ultimately result in lower growth.”

And throughout the region, the organization emphasizes that a possible escalation of Russia’s war in Ukraine or an expansion of the conflict in the Middle East could increase uncertainty and affect supply chains and raw material prices.

In his recipe for facing the situation, he recommended greater European integration.

“Europe must focus on building and deepening the single market. There is much to do. It is not just about capital markets and the banking union. It is (also) about border infrastructure. “There are still frictions in labor mobility, the compatibility of educational certificates or a whole series of issues that can be addressed”concluded the economist.

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