Washington (Reuters): The International Monetary Fund on Monday called for a “comprehensive approach” to revive economic growth in the eurozone, including reforms that make better use of the labor force and boost productivity.
In a staff position note on priorities for rekindling growth in the 16-nation bloc, the IMF called for a strengthened financial system and sustained financing for investment. It also urged more policy coordination at the EU level to drive the reform agenda.
“In the aftermath of the crisis, boosting growth is essential to prevent unemployment from becoming a long-term problem and to facilitate the return to fiscal sustainability,” the IMF said.
“There is little excuse for relatively low labor productivity, a particular bane in southern Europe and an increasing challenge everywhere,” it added.
The 25-page report comes as the euro area tries to prevent a debt crisis from spreading as Ireland currently negotiates the terms of an EU and IMF rescue loan.
The IMF report said since early 2008, the eurozone lost about 2.5 percentage points in per capita gross domestic product relative to the United States and barely kept par with Japan, even though Japan’s recession was more severe.
While acknowledging that each country is different, the IMF said southern Europe needed to focus on becoming more competitive, while some “core” countries in the eurozone should promote higher labor force participation or open up more their service sector markets.
The Fund said in the past reforms in the eurozone were more successful when driven by European institutions than oversee the eurozone rather than through peer pressure from other countries.
“More reform authority should be vested at the euro area level and countries should be willing to adjust national policies to secure an effective functioning of the economic and monetary union,” the IMF report said.
It said changes should be included in a stronger surveillance mechanism over fiscal and structural policies; EU transfer rules revised to reward reformers and punish laggards; and more efforts made to ensure countries abide by the rules.