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Overestimating the EU Economy

If the EU were a soccer team, it would not lose games for lack of a game plan or due to inadequate capacity. The problem is that the team as a whole is not playing cohesively, and all of the top players are struggling individually, owing to messy problems at home.

ABU DHABI – The European Commission, the International Monetary Fund, and the OECD predict that, on average, the European Union’s economy will grow by 1.9% next year, a rate that is broadly consistent with the average of 2% expected for this year. But the picture this paints may prove to be overly optimistic, not only because the growth rate itself is likely to disappoint, but also because there is significant downward pressure on the EU’s growth potential beyond 2019 – pressure that, at present, European leaders seem unprepared to counter effectively.

If the EU were a soccer team, it would not lose games for lack of a game plan or due to inadequate capacity. Worth nearly $19 trillion, the EU’s economy remains the world’s second largest, constituting about one-fifth of the global output. The problem is that the team as a whole is not playing cohesively, and all of the top players are struggling individually, owing to messy problems at home.

Over the last year, small steps – such as strengthening the collective financial safety net – have been taken to enhance the EU’s overall capacity to handle bumps in the road. But the economy’s overall architecture remains incomplete. The problems are particularly notable in the eurozone, which is challenged by slow progress on banking union, inadequate fiscal-policy coordination, and political divisions.

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