Title page
Contents
Executive summary 10
1. Key policy insights 15
Challenges facing the European Union 16
The COVID-19 crisis may worsen economic divergence in the EU 17
The EU faced an unprecedented recession in 2020 17
A vigorous policy response supported demand and reduced financial fragmentation 20
The recovery hinges on the health outlook and faces considerable risks 23
Economic divergence across countries and regions could increase 31
Supporting the recovery and greater convergence 32
Fostering investment and innovation 32
Making migration policies more supportive to growth 38
Stepping up the fight against corruption 41
Special focus: climate change and a circular economy 45
Achieving zero net greenhouse gases emissions by 2050 45
Improving resource efficiency by moving towards a circular economy 53
References 59
Annex 1.A. Progress in main structural reforms 64
2. Enhancing regional convergence in the EU 67
Large and persistent regional disparities are challenging the cohesion of the European Union 68
Progress in convergence has been uneven and slowed down 69
Global trends have hampered regional convergence 72
European-specific features have exacerbated those trends 74
Resuming convergence calls for a wide set of policy actions 77
Policies to help regions upgrade their specialisation in a rapidly changing world 78
Building on new approaches to regional and industrial policies: fostering innovation and agglomeration economies 78
Trade and competition policies for a level playing field 85
Climate change mitigation implies productive reconversion in some regions 89
Using the EU budget more efficiently to support regional convergence 92
Towards a more efficient cohesion policy 95
Reforming the Common Agricultural Policy to enhance rural development 99
References 104
Table 1. Robust growth is expected 11
Table 1.1. Macroeconomic indicators and projections 26
Table 1.2. Events that could lead to a major deterioration in the outlook 30
Table 1.3. Components of the Next Generation EU recovery plan 34
Table 1.4. Past recommendations and actions taken on migration policies 41
Table 1.5. Past recommendations and actions taken on fighting climate change 48
Table 1.6. Recommendations on selected policies of the Key Policy Insights Chapter 57
Table 2.1. Recommendations to enhance regional convergence in the EU 103
Figure 1. The output loss in 2020 was very large 11
Figure 2. Investment in R&D is low 12
Figure 3. Emission abatement needs to accelerate, especially in transport 13
Figure 4. The use of raw materials is increasing 13
Figure 1.1. The EU faced its worst-ever recession, but is rebounding strongly 16
Figure 1.2. Trust in the EU has been preserved, despite the pandemic 17
Figure 1.3. Tough containment measures were needed to halt contagion 18
Figure 1.4. The large recession has been highly asymmetric across sectors 19
Figure 1.5. The EU current account surplus has remained large 20
Figure 1.6. Depressed demand has caused unemployment and disinflation 20
Figure 1.7. Financial fragmentation in the euro area has been reduced further 21
Figure 1.8. COVID-19 vaccination in the EU took time to gather speed, but is catching up fast 24
Figure 1.9. A robust recovery is expected, supported by fiscal policy 25
Figure 1.10. The US and other European countries are the EU27 largest export markets 27
Figure 1.11. Brexit will induce moderate output losses in the EU 29
Figure 1.12. Non-performing loans are expected to rise again 30
Figure 1.13. Take-up of loan relief measures varies widely across the EU 30
Figure 1.14. The pandemic is expected to have asymmetric impacts 31
Figure 1.15. Convergence between countries has slowed down, and divergence within countries has increased 32
Figure 1.16. Low investment is a threat to the recovery 33
Figure 1.17. The largest EU economies lack cross-border electricity interconnections 36
Figure 1.18. Disparities in the availability of high-speed internet are large 37
Figure 1.19. Arrivals of asylum-seekers have decreased 39
Figure 1.20. Public opinion about immigration is polarised 40
Figure 1.21. Blue Card attractiveness is growing, but remains limited 41
Figure 1.22. Perceptions of corruption vary widely across EU countries 42
Figure 1.23. Stronger action against money laundering is needed 45
Figure 1.24. Greenhouse gas emissions have been reduced, and this should continue at a fast pace 46
Figure 1.25. Cars are the main source of emissions in the transport sector 49
Figure 1.26. The price of EU emission allowances has significantly increased 50
Figure 1.27. Climate-related events are on the rise worldwide 53
Figure 1.28. On current policies, global materials extraction is projected to strongly increase 53
Figure 1.29. High materials use requires policy action to reduce environmental impact 54
Figure 2.1. GDP per capita varies widely across EU regions 68
Figure 2.2. Convergence between countries has slowed down, and divergence within countries has increased 70
Figure 2.3. Southern and Eastern European countries have had a contrasting growth performance 70
Figure 2.4. Divergence has increased among older EU member states 71
Figure 2.5. The gap between metropolitan and remote regions is very wide 72
Figure 2.6. Larger regions have diverged in their sectoral specialisation 73
Figure 2.7. Poorer regions have more jobs at high risk of automation 74
Figure 2.8. Loss of manufacturing has been associated to declining prosperity 75
Figure 2.9. People have moved to metropolitan areas 76
Figure 2.10. Growth in the wealthiest European regions has often been outpaced by their US counterparts 77
Figure 2.11. The EU lags behind in R&D performed by firms 80
Figure 2.12. Many EU countries and regions have meagre R&D investment 83
Figure 2.13. Richer regions invest more in R&D and have received more Horizon 2020 funding 83
Figure 2.14. Coal mining in the EU is geographically concentrated 90
Figure 2.15. Men are over-represented in brown industries, especially at older ages 92
Figure 2.16. Policies with a territorial dimension account for most of the EU budget 93
Figure 2.17. EU budget tools differ in their degree of redistribution 94
Figure 2.18. Public procurement in cohesion policy could be made more competitive and transparent 96
Figure 2.19. Data in procurement procedures is often incomplete 97
Figure 2.20. Cohesion policy has become more complex over time 98
Figure 2.21. Amounts involved in irregularities reported as fraudulent have increased 99
Figure 2.22. Agricultural regions are often lagging 100
Figure 2.23. Generational renewal in agriculture remains insufficient 101
Boxes
Box 1.1. The European monetary, financial and fiscal response to the COVID-19 crisis 22
Box 1.2. The division of competences between the EU and its Member States 23
Box 1.3. The EU health response has been cooperative, but exposed gaps in capabilities 25
Box 1.4. Simulating the economic impacts of the EU-UK trade agreement 28
Box 1.5. The Next Generation EU recovery plan 34
Box 1.6. Delivering the European Green Deal: the Fit for 55 policy package 47
Box 1.7. The 2020 EU Circular Economy Action Plan 55
Box 2.1. Supporting regional innovation and development: Korean technoparks 79
Box 2.2. Fostering breakthrough innovation and collaborative efforts: DARPA and EIC 81
Box 2.3. Productive upgrading in former coal mining regions: the case of Limburg 91
Box 2.4. EU budget tools for a balanced territorial development and their allocation 94