By Jan Strupczewski

BRUSSELS (Reuters) – Cross-border challenges are widening the gap between European and American output, a study by the International Monetary Fund (IMF) revealed.

The European Union's GDP per capita, measured with purchasing power parity, is currently about 72% of that of the United States, according to the IMF study.

Alfred Kammer, head of the IMF's European department, noted that 70% of this gap stems from lower productivity growth in Europe compared to the U.S. Despite both markets being comparable in size, the European market is highly fragmented, featuring trade barriers among the EU's 27 countries that do not exist in the U.S.

As a result, companies tend to target national markets rather than the larger European market, missing out on the potential advantages of scale. Kammer suggested that lowering trade barriers within the EU to match the level present among U.S. states could enhance European productivity by seven percentage points.

Another hurdle identified by Kammer is the lack of a unified market for capital flows, disadvantaging EU companies in financing compared to U.S. firms. European tech companies often lack the physical collateral needed for bank loans, relying instead on underdeveloped venture capital markets that are focused on national rather than cross-border investments.

For the last decade, the EU has been working on a Capital Markets Union to eliminate various barriers to capital flows. This initiative has gained momentum this year, but officials are skeptical about the speed of progress.

Additionally, Kammer highlighted that worker mobility within the EU is significantly restricted compared to the U.S., exacerbated by a shortage of housing for purchase or rent. "The costs in Europe are eight times as high," he remarked.

Kammer emphasized the importance of improving the EU's single market for goods and services, stating that the solutions largely lie within the hands of policymakers. Recently, EU leaders have called upon the European Commission to draft proposals aimed at enhancing the single EU market by mid-2025.