Europe Needs ‘Down Payments’ on Reforms to Accelerate Growth, Says IMF

The European Union needs to implement just a few key reforms to boost economic growth, improve competitiveness, and sustain welfare programs, Alfred Kammer, head of the IMF’s European Department, told Reuters on Friday.

“At the European level, we have what I call a few ‘down-payment’ reforms — and these alone can lift GDP growth by an average of about 3% over the next decade,” Kammer said.

He explained that such reforms would reduce electricity costs, improve labor mobility, harmonize bankruptcy laws among EU countries, and increase the share of pension and insurance fund assets invested in EU venture capital.

The EU economy grew by 1.0% in 2024, and the European Commission expects growth to rise to 1.1% in 2025 and 1.5% in 2026.

Kammer added that the bloc could strengthen growth further by removing internal trade barriers between its 27 member states and offsetting the impact of higher U.S. tariffs on European goods and services — which he said now amount to the equivalent of 44% on goods and 110% on services.

The EU is eager to grow faster and compete more effectively with the U.S. and China. To achieve this, member states must cooperate more closely on political, economic, and regulatory matters, enabling businesses across the bloc to take full advantage of its single market of 450 million consumers.

However, Kammer acknowledged that deeper market integration remains politically difficult, even though Europe already possesses the ingredients for success.

“The U.S. leads in innovation but not in manufacturing. China is very strong in manufacturing and catching up in innovation,” Kammer said. “Europe, on the other hand, has a strong manufacturing base and strong innovation — the best of both worlds. But it needs to connect and leverage these strengths across countries — that’s what the single market is, and that’s Europe’s power.”

To achieve this, the EU aims to establish a Savings and Investment Union (SIU) among its 27 members, channeling some of the roughly €10 trillion in household savings now sitting in low-yield bank deposits into higher-return investments and securities. Yet progress has been stalled for more than a decade by differences in tax, labor, and legal systems.

Kammer said that even taking a few “down payment” steps could help accelerate growth. “These reforms are essential for raising growth and income levels,” he said. “They are also critical for preserving Europe’s welfare states, because the more growth-enhancing reforms you implement, the less fiscal adjustment you’ll need to handle long-term spending pressures.”

While some countries would benefit more than others, Kammer noted that all EU members could see a 2%–5% GDP boost over the next decade.

Still, he warned that entrenched national interests and resistance from justice and labor ministries have slowed progress.

“EU leaders understand the importance,” Kammer said, “but it’s also a question of bandwidth. They’re dealing with many issues at once — a lot of domestic political challenges are competing for their attention.”