Call for EU reform to support recovery

The European Union (EU) must continue to implement structural reform to ensure a return to sustainable growth, according to the Organisation for Economic Cooperation and Development (OECD) 2009 economic survey of the European Union released today.

The report says that whilst monetary and fiscal policy have helped revive the European economy, output is expected to fall by 4% in 2009, and that the recession will lead to a considerable loss of capacity in the European economy.

The OECD says the EU must use the opportunity presented by the global recession to continue to pursue structural reform to help support long-term growth and the sustainability of public finances.

However, it adds the EU must take care to ensure that policies implemented to support local jobs and businesses do not endanger the single market, or make it more difficult for external countries to access the European Economic Area (EEA).

Whilst the OECD report welcomes plans for European-wide financial services reform which will encourage greater cross-border regulation, it warns that banks may not yet have recognised the full scale of asset impairments. It adds that regulators must avoid unnecessary or badly-designed regulation which could damage European financial markets.

The EU must continue to develop the single market programme to increase competition, particularly in the services sector. Implementation of the Services Directive will support this but the report says many member states are struggling with the legislative change required to meet the implementation deadline of the end of 2009.

The OECD says the EU needs to strengthen its investment in knowledge and innovation. It says that research and development (R&D) expenditure continues to lag behind that of America and Japan, and is falling short of its stated investment target of 3% of GDP by 2010.

The report says the EU must ensure that the transition to a low-carbon economy is as cost-effective as possible. Whilst Europe is heading towards its target of 20% use of renewable energy by 2020, many countries are offering generous subsidies in order to achieve this.

Finally, the report examines proposals for energy market reform, including proposals for “unbundling” operators. Whilst it welcomes plans to make operators of the main gas and electricity networks co-ordinate the cross-border operation of these networks, it says that careful monitoring will be required to ensure that countries make adequate cross-border investment to ensure this happens.

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