Further policy fixes needed to speed up European recovery

The European economy is gradually recovering but several problems remain from the global financial crisis including poor employment rates, relatively low investment and sluggish credit growth.

The information is contained in economic surveys of the EU and euro area published on Friday by the Organisation for Economic Cooperation and Development (OECD).

With less than two weeks to the UK vote on remaining in the EU, the OECD reiterated widespread concerns a so-called Brexit would damage Europe, leading to economic uncertainty, hindering trade and foreign direct investment.

There was concern too about the impact of the migrant crisis, found to be “shaking confidence” in Europe and costing the 28 nation bloc about 0.2 per cent of its GDP.

The surveys project EU GDP will grow by 1.8 per cent this year and by 1.9 per cent in 2017. In the euro area - the monetary union between 19 member states - GDP is expected to grow by 1.6 per cent this year and 1.7 per cent in 2017.

“Europe has put the worst of the crisis behind it, but there is still much more to do to support a full robust recovery that benefits all Europeans,” said OECD secretary general Angel Gurría at the publication of the surveys in Paris.

Cooperative solutions have enabled Europe to leave the worst of the crisis behind it, he said, but the necessity for continued cooperation remains to tackle ongoing issues.

The reports warn of a flare-up in political tension due to the large influx of refugees to Europe, and noting the reintroduction of border controls in some parts of the Schengen free movement area is a “setback for European integration”.

Disruption to the free movement of goods and labour as a result would “to some extent undo the benefits of the single market and shake confidence in the European Union more generally”, it said.

The financial cost relating to refugees, including support on arrival and integration into the labour market, was estimated at up to 0.2 per cent of EU GDP in 2016, but rising to as high as 0.9 per cent in Sweden.

The surveys recommend countries with fiscal space should use budgetary spending to boost growth.

It also suggests increasing support for public investment projects given the falloff during the most severe years of crisis. Tax reform is called for to spur growth.

The reports hone in on the issue of resolving non-performing loans which remain in a number of countries, “threatening financial stability” and hampering bank credit.

"Waivers could be applied to the new Bank Recovery and Resolution Directive rules to help put in place government-supported schemes when non-performing loans are a serious economic disturbance," the surveys said.

The possibility of deepening the single market is also discussed with a number of options flagged including labour mobility, a key aspect of the battle against unemployment rates. Reducing administrative and regulatory barriers in the services sector and accelerating the recognition of professional qualifications across national borders would encourage such mobility, the surveys said.

GDP could be further boosted, it continued, by “prioritising trans-European solutions for fragmented transport and energy networks, boosting competition in network industries and enhancing R&D policy and the digital single market”.