The EU needs to spend more on public goods to strengthen productivity and growth, said the International Monetary Fund on Tuesday.
Speaking at the annual EU budget conference, Alfred Kammer, the IMF’s European department director, noted that “the scale and nature of the challenges ahead require a fundamental rethink”.
Kammer suggested that the EU should raise its spending on public goods from 0.4% of GNI (gross national income) to at least 0.9%.
Without cuts to existing programs, that would increase the bloc’s MFF spending to 1.7% of GNI in the period from 2028 to 2034. That’s up from 1.1%, Kammer added.
The MFF is the EU’s long-term budget which usually covers a seven year period, with the current plan running up to 2027.
The IMF noted that Europe is facing a raft of challenges, notably ageing populations, the climate crisis, and a productivity slump. Rising geopolitical tensions and unpredictable US policies are further clouding the region’s outlook, as the EU must become more self-sufficient in terms of security.
One way to tackle these issues is by boosting growth and improving the single market, said Kammer.
While goods, services, capital and people can in theory move freely between member states, the IMF warned that barriers still exist.
“The EU single market remains far from complete,” Kammer said at the Centre for European Policy Studies (CEPS) in a separate briefing on Monday.
“For instance, it can take up to 6 months for an EU worker who relocates to another EU country to be legally employed there. Large differences across bankruptcy procedures discourage cross-border investment, while having national stock markets introduces vast inefficiencies in the allocation of capital across the continent. This fragmentation increases costs and hurts business dynamism and growth.”
The IMF said it expects growth at 0.8% and 1.2% in 2025 and 2026, a reduction of 0.2 percentage points in both years compared to the projection shared in January.
It noted that inflation is decelerating and approaching targets, driven by lower energy prices and tepid demand.
Regarding the ECB trajectory, it said the central bank should lower its policy rate to 2% this summer and leave it stable for the foreseeable future.
