FT: Worrying Predictions for Eurozone Living Standards

The Financial Times published an article revealing a startling prediction that was made by the European Commission. According to the author of the article, the European Commission has made it crystal clear that the living standards in the eurozone – currently relative to US – will get worse. In fact, the Commission’s officials predict that by 2023, the living standards in eurozone will be lower than they were in the mid-1960s.

This pessimistic prediction is in full contrast with the “comforting tales of economic recovery and financial market stability on which Europe’s leaders are congratulating themselves in these early weeks of 2014”  FT notes.

The author of the article underlines that “this prediction raises profound questions about Europe’s relative weight in the world and, in particular, about its military alliance and economic partnership with the US.”

FT brings to light the Commission’s report, pointing out that “the US economy has pulled away from Europe since the mid-1990s, mainly because of higher productivity and faster adoption of advanced technologies. Hourly labor productivity levels in the eurozone were almost 90 percent of US levels in the mid-1990s, but they have fallen by 10 percentage points since then and are projected to drop another 6 points to 73 percent of US levels by 2023.”

According to the article, the Commission’s report underlines that “unless the eurozone reforms itself, living standards will be only 60 percent of US levels in 2023, says the Commission. Two-thirds of the gap will be attributable to lower labor productivity. One-third will be down to differences in employment rates and hours worked per worker.”

“The evidence suggests that not only has the US’s growth performance been relatively less affected by the financial crisis, but also that the US is expected to emerge from the crisis in a stronger position compared with the euro area,” the Commission’s report says.