It is not just up to Washington to correct global imbalances
16 Jan '06
10 min read
Europe's key economic challenge is to raise its growth and employment performance, with an aging population. Social cohesion is already under pressure. Symptoms include growing hostility toward further European integration and globalization. Absent reform, social cohesion is likely to diminish further. A falling working-age population and rising spending related to aging will cause major problems. At present there are somewhat less than four people in the age range 15-65 for every one person over 65. By 2050 that ratio could be closer to two to one.
Part of the solution must be to achieve higher employment. Several countries in Europe have already shown ways to tackle structural problems in employment, without undermining social solidarity. Indeed, employment growth in the EU has been about the same as that in the U.S. over the past decade. This achievement is mostly due to more job-friendly wage policies, the liberalization of part-time and temporary employment, and the phasing-out of early-retirement schemes. It shows that reform is possible in Europe, and that it can both improve economic prospects and support social solidarity. But more needs to be done if Europe is to enjoy sustained strong growth.
A high priority is to reform welfare and improve labor utilization. Different countries need to take different steps, and European countries can learn from each other. Europeans sometimes resist reforms by stating a reluctance to copy the American model. But there is enough good performance in Europe for the continent's countries to benefit not by emulating any transatlantic blueprint, but by copying the most effective European models. Several policy options could be considered—each more relevant for some countries than others:
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