Economic Policy Reforms 2019

European Union

GDP per capita relative to the upper half of OECD countries has declined since the global financial crisis, mainly due to higher structural unemployment. Labour productivity has evolved in tandem with that in other advanced economies.

Income inequality in the European Union varies widely between Member States. Notably it is higher than the OECD average in the countries that were hit particularly strongly by the crisis. Greenhouse gas emissions are lower than that of most advanced OECD countries, but exposure to fine particulate matter is high.

The single market remains fragmented. The Commission launched a new services package in January 2017 that aims at facilitating the mobility of professionals and streamline cross-border administrative procedures in construction and business services. Some of these proposals are unlikely to receive support in the EU legislative process. No progress has been made on reducing producer support to agriculture and make the EU budget more growth-friendly.

Pressing ahead with the single market project by removing remaining barriers in services, energy, digital and transport would spur long-term growth and improvements in living standards. Greater intra-EU labour mobility and facilitation of hiring skilled workers from outside the European Union could ease ageing-related labour shortages. Despite recent revisions to the EU Emission Trading System, to meet the EU 2030 greenhouse-gas emission targets in a cost efficient way, policy needs to be tightened, with more attention to the interactions of policies at EU, national and local level.

Growth performance, inequality and environment indicators: European Union

Source: Panel A: OECD, Economic Outlook Database; Panel B: OECD, Income Distribution and National Accounts Databases; United Nations Framework Convention on Climate Change (UNFCCC) Database and International Energy Agency (IEA), Energy Database; Panel C: OECD, National Accounts and Productivity Databases.

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Policy indicators: European Union

Source: Panel A: OECD, Services Trade Restrictions Database; Panel B: OECD, Producer Support Estimate Database.

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Beyond GDP per capita: European Union

Source: Panel A: OECD, Income Distribution Database, World Bank, World Development Indicators Database and China National Bureau of Statistics; Panel B: OECD, Environment Database.

Note: For the explanation of the sets of indicators above, please go to the metadata annex at the end of this chapter.

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European Union: Going for Growth 2019 priorities

Enhance support for innovation. Innovation and its widespread diffusion are essential for stronger productivity growth.

• Actions taken: The Better Regulation Guidelines to decrease administrative burdens and the underlying toolbox were updated and strengthened in 2017.

• Recommendations: Increase spending on research and development in the EU budget. Progress in harmonising insolvency proceedings through minimum European standards allowing simpler early restructuring, shortening the effective time to discharge, and more efficient liquidation proceedings.

Increase competition in service and network sectors. Restrictive regulations in service sectors hinder cross-border competition and investment. Network sectors remain fragmented along national lines.

• Actions taken: The 2017 service package aims at facilitating the mobility of professionals and streamline cross-border administrative procedures in construction and business services.

• Recommendations: Address barriers in business services through simplified administrative formalities for the establishment and provision of cross-border services and guidance on implementing EU legislation. Pursue the planned cross-border co-operation on power system operation and trade in electricity, including interconnection capacity calculations and reserve margins.

Reduce producer support to agriculture. Price support distorts markets for some agricultural products and reduces EU budget resources to support investment and growth.

• Actions taken: No action taken

• Recommendations: Phase out production-based payments in the Common Agricultural Policy. Reassess direct support and target it better to environmental and climate change mitigation objectives and to support farming methods that are more resilient to climate change.

Remove barriers to labour mobility within the European Union. Labour mobility within the EU remains low, hampering the absorption of country-specific shocks and a more efficient allocation of resources across borders.

• Actions taken: In 2017 the Commission proposed a European services e-card simplifying administrative formalities required to provide services in another Member State. The Commission proposed/introduced reform recommendations for the regulation of professional services and a proportionality test before adoption of new regulation on professional services.

• Recommendations: Increase spending on mobility programmes such as Erasmus+ and facilitate access to these programmes irrespective of socio-economic background. Foster the harmonisation of professions’ curricula at the EU level. Make the electronic European professional card available to all sectors. Step up efforts at the EU level to coordinate the design and organisation of joint cross-border labour and tax control activities.

1Strengthen the drive to fight climate change. On current policies, greenhouse gas emissions are projected to exceed the 2030 target that the EU and its member states have collectively committed to.

• Recommendations: Increase the price of greenhouse gas emissions. Increase minimum tax rates on fossil fuel use that falls outside the ETS, especially where tax rates are currently low or zero. Consider including transport into the EU Emissions Trading System (ETS). Improve consistency of targets and policies at the EU, national and local levels.