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2021 OECD Economic Surveys: European Union 2021

image of OECD Economic Surveys: European Union 2021

The COVID-19 pandemic plunged the EU into its worst-ever recession and risks increasing inequalities, notably between regions. Thanks to a bold and innovative policy response, including a common instrument to finance national recovery plans (Next Generation EU), growth is rebounding, but ambitious reforms will be essential to heal the scars of the pandemic and succeed in the green and digital transitions. This Survey has three main messages. Firstly, increasing public and private investment is key to speed up the recovery. Improving European interconnections and fostering cross-country collaboration in innovative industrial projects should be priorities. Secondly, the transition towards climate neutrality and a circular economy will enhance well-being while improving European industrial strengths. Better pricing of carbon emissions, new regulatory tools and more R&D funding will all help reinforcing the transition towards a greener economy. Finally, to avoid the rise in regional inequalities, poorer regions need to improve their productive specialisation. For that purpose, cohesion and rural development policies need to be revamped to gain in efficiency, notably by supporting more effectively innovation.

SPECIAL FEATURE: REGIONAL CONVERGENCE

English Also available in: French

Enhancing regional convergence in the EU

Progress in regional convergence in the EU has been uneven over the last two decades. While Central and Eastern Europe has been catching up, Southern Europe has often lost ground, especially after the global financial crisis. Furthermore, within most countries, gaps between large cities and rural areas have widened. Some challenges to convergence have stemmed from worldwide factors – such as globalisation, digitalisation, global warming, and, more recently, COVID19 – but others are European-specific, like incomplete financial integration, less effective fiscal governance and subpar innovation performance. This chapter proposes policy action to reduce regional divergence by helping regions upgrade their productive specialisation. Building on new approaches to regional and industrial policies, Europe needs to exploit the full potential of cross-country cooperation in innovation and of urban agglomeration economies. Competition and trade policies need to ensure a level playing field to enhance the benefits of open and competitive markets while responding to new challenges, such as digitalisation or foreign subsidies. Finally, Cohesion Policy and the Common Agricultural Policy, the two largest EU budget instruments, need to become more effective at promoting productive upgrading.

English Also available in: French

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