The European Union is facing a critical economic challenge as the International Monetary Fund (IMF) warns of a persistent 30 per cent income growth gap with the United States. This substantial divide can only be addressed through deeper market integration or the inclusion of new eastern member states, according to the IMF’s latest regional outlook.
The GDP per capita income disparity between the US and EU has expanded significantly over the past decade, with no signs of improvement under current IMF baseline projections. This concerning trend has worsened since the 2008 financial crisis, during which time only three countries have joined the bloc following the EU’s significant expansion in 2004.
The IMF’s analysis suggests that incorporating new members, including Ukraine, Georgia, and Moldova, could potentially reduce the per capita growth gap with the US by 10 percentage points. This improvement would stem from the ‘catch-up’ growth experienced by poorer accession countries, while existing member states would benefit from an expanded single market.
A potential EU37 configuration could boost the combined GDP per capita by 14 per cent over 15 years, according to IMF calculations. This projection assumes new members would receive full membership rights, including access to common budget funds and the freedom of movement for labour and capital across borders.
The path to expansion faces significant hurdles, particularly regarding Ukraine’s potential membership. European farmers have expressed strong opposition, citing concerns about competition from Ukraine’s substantial agricultural sector. Prospective members must also implement comprehensive legal and economic reforms to liberalise their markets and align with EU standards.
The IMF emphasises that successful integration could unlock new growth sources, providing member states access to broader production factors and consumer markets, ultimately enabling firms to achieve greater economies of scale.
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