Europe has been a continent with a meager economic growth for quite some time. High growth rates since 1950-ih established Europe as one of the most developed corners of the globe. Even today, GDP per capita level in Europe is high compared to most other regions. However, since the 1990-ies growth rates in Europe have slowed down, which was further exacerbated with the financial and public debt crisis since the 2008. Pro-growth policies are necessary in order to foster higher economic growth in the region: lowering taxes and public consumption, less redistribution which erodes incentives and business friendly market regulation hold the key to enhanced prosperity


Why is economic growth important?

It is not - unless you want to live healthier and longer, do less manual labour and indulge yourself with trivial things such as travel, education and clean environment. The richer a country is, the more of all these fine things it can afford.


But is small a difference between a 1% and 3% growth rate significant?

Not in the short run - a country with a GDP per capita of 25 000 (equivalent to the level of the Russian Federation in 2016) with a 1% growth records an increase in wealth of 250 USD per person, while with a 3% it would record 750 USD. There difference seem minuscule - however, in the long run these small difference prove to be gigantic. For example, with 1% growth a country will double its level of GDP in 72 years, while with the average growth of 3% it would happen in just 24.


Income convergence

Growth rates are on average and long term higher in less developed countries than in those that already achieved a high level of income. Therefore, it is expected that some countries achieve higher growth rates than others. This also holds true for Europe - on average, countries with lower income have experienced higher growth rates.


Was the last decade a lost decade for Europe?

Not really. But it was not a decade of success either. On average, developed Europe had slower growth than USA or even Japan. On the other hand, developing European countries recorded growth rates similar to the world average, with a GDP in 2016 approximately 28% higher than its 2008 level.

However, we should look beyond the European average to data for individual countries. When we compare the GDP per capita PPP (from IMF World Economic Outlook) in 2008 and 2016, we see that majority of countries experienced economic growth, but that there are many differences among individual countries. The UK, Sweden, Germany and Ireland have well over performed other European countries and even the USA, while Poland, Tajikistan and Georgia have been top performers in their group.

What is worrisome is that many big European countries have experienced an average growth rate of less than 1% annually - Spain, Portugal, Italy, Finland. Italy virtually has the same level of income today that it had almost a decade earlier. At the same time, Croatia and Slovenia are in the same basket, having recorded average growth rate less than 1% too.





What now?

Learning from good and bad examples could be important. Basically, Slovakia and Poland have recorded relatively high economic growth although they already reached higher income than many other European countries. At the same time, less successful countries like Croatia and Serbia, although coming from a lower base were not successful in obtaining good growth rates. Italy also has very poor results.

Pro-growth policies are simple: don’t get people in their way and don’t waste their money. As Adam Smith put it: ‘’Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice.’’