Journal of Economic Perspectives: Vol. 18 No. 4 (Fall 2004)
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The Economic Future of Europe
Blanchard, Olivier. 2004. "The Economic Future of Europe." Journal of Economic Perspectives, 18(4): 3-26.
After three years of near stagnation, the mood in Europe is definitely gloomy. Many doubt that the European model has a future. In this paper, I argue that things are not so bad, and there is room for optimism. Over the last thirty years, productivity growth has been much faster in Europe than in the United States. Productivity levels are roughly similar today in the European Union and in the United States. The main difference is that Europe has used some of the increase in productivity to increase leisure rather than income, while the United States has done the opposite. Still not everything is well. Unemployment is still high, and Europe suffers from inefficient regulation. Here also however, there is more action than often perceived, and a wide ranging reform process is taking place. This process is driven by reforms in financial and product markets. Reforms in those markets are in turn putting pressure for reform in the labor market. Reform in the labor market is slowly taking place, but not without political tensions. These tensions dominate the news; but they are a symptom of change, not a reflection of immobility.
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