European growth: myth, reality and necessity (Part II)

Summary:

Despite much more noticeable productivity gains in Europe than in the US over the last 30 years, Europe has failed to close the per capita income gap with the US. Indeed, in the most recent years it has even begun to open. However, while certain aspects of the European economic model may have contributed in a modest way to this phenomenon, the principle explanatory factor has been that Europeans have converted most of their productivity gains into leisure rather than income. Nevertheless, this process appears to have run its course. Future European productivity gains are likely to be converted into increases in per capita income. But Europe would be well advised to finally take seriously further productivity-enhancing reforms, along with improvements in economic governance so as to improve the efficiency of anti-cyclical macroeconomic policy. The single most important key to the future of Europe lies in successfully executing a growth transformation. This would hold out the biggest promise for Europe to someday realize what some have called its 'Kantian vision' for itself, if not the world.

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