It is high time for Structural Reforms 2.0

© KAS

Most EU member states experience a slowdown in structural reforms. The current excellent cyclical economic situation covers underlying problems and pressure for reform is weak. Given low productivity growth, monetary tightening and upcoming trade protectionism, more ambitious structural reforms are urgently needed. The deepening of the Economic and Monetary Union (EMU) depends in particular on resilient and strong national economies.

To tackle the topic of reform fatigue in the EU, BDI explored best practices with various policy makers. In April 2018, representatives of several associations and European institutions met for a high-level workshop co-hosted by the Brussel’s office of Konrad-Adenauer-Stiftung. Participants posed their attitudes to current status of structural reforms within the EU. Despite significant chances in digital, energy or capital markets in Europe, these potentials are not yet skimmed. BDI therefore indicated differences among the member states. Five European countries are amongst the top ten countries in terms of global competiveness as measured by the World Economic Forum, whereas a lot of member states not even rank  among the top 50 in that issue. These divergences illustrate that there is no “one-fits-it-all”-instrument solving European problems.

In order to facilitate structural reforms in member states, the EU Commission is providing technical support for the the member states. These services have already been used to a great extent with 75 percent of the activities directly linked to country specific recommendations and25 percent related to general EU priorities. Moreover, the EU Commission is monitoring and benchmarking member states and their reforms in terms of the European Semester. Besides, a new reform delivery tool including financial aid in the upcoming Multiannual Financial Framework of the EU,  is planned to complement the previously mentioned instruments. In the light of the low implementation rates of the Commission’s country specific recommendations, this tool is a highly appreciated step. According to BusinessEurope’s latest Reform Barometer, only 22 percent of the proposed reforms were implemented satisfactorily.

However, member states should carry out reforms first and foremost for their own sake. Numerous examples point to the fact that structural reforms pay off. The German reforms of the early 2000s transformed the “sick man of Europe” into one of the most prosperous economies within the EU. Recent efforts in France have the same potential. Despite the differences between member states, BDI stresses benchmarking and best practices as most promising approaches to promote national reforms. In the end, they will equally benefit EMU as a whole