The debate about how to revive the European economy continues. Recently, former European Central Bank (ECB) President Mario Draghi was commissioned by the European Union (EU) to report on how to end Europe’s productivity slump and revive growth. Now, the IMF is entering the debate, offering its own ideas on how to fix Europe.

First, consider the problem. In the 1990s, labor productivity in the EU was slightly higher than in the United States. This reflected considerable investment in labor-saving and labor-augmenting technologies in Europe. Still, US per capita income was higher than in Europe simply because Americans, on average, worked longer hours than Europeans. Today, however, US labor productivity is significantly higher than in Europe, the result of relatively rapid productivity growth in the United States versus slow or no growth in Europe. This reflected large US investment in technology, facilitated by a strong system of venture capital investment. This has led to a significant increase in the per capita income gap between the United States and Europe. Many policymakers in Europe are afraid that, if this pattern is not reversed, Europe will fall far behind the United States.

Moreover, European policymakers are likely worried that failure to improve living standards will create frustrations that will boost the impulse toward populist politics on both the right and the left. Plus, given that Europe’s population is growing more slowly than that of the United States, total GDP will fall even further behind the US, thereby reducing Europe’s influence on global economic and geopolitical issues.

Thus, what should be done? Mario Draghi suggested increased investment, financial market reforms aimed at facilitating more venture capital investment, and more regional integration to support large-scale investment in research, technology infrastructure, and human capital. The IMF has offered similar suggestions. It says that the fundamental problem is that productivity has stagnated, especially in technology. Specifically, it says that “a larger and more integrated single market for goods, services, and capital will incentivize investment, innovation, and generate scale benefits. Deepening European integration will also strengthen economic resilience by insulating businesses and labor markets from global fragmentation pressures.” Both Draghi and the IMF emphasize that it is not enough for individual European countries to implement reforms. Rather, integration is key to achieving scalar benefits.

The IMF’s vision is actually fairly similar to the vision of those who were responsible for creating the single market and the Eurozone. However, Europe has been challenged to fully implement that integrated vision, restrained by national government concerns about a loss of sovereignty and control. Meanwhile, the pandemic created a negative fiscal shock from which the region is still recovering, although the pandemic did lead to the first significant effort at fiscal integration. Large budget deficits and government debt inhibit expenditures on joint investments within the EU. Yet the hope is that the accelerating competition from leading-edge companies in the United States and China might cause policymakers to kickstart new efforts to boost productivity.