'The structure of the European economy needs to change more quickly,' says IMF Europe chief Mateusz Szczurek

Now, Europe's economy is facing a dangerous combination of challenges. Sluggish growth, mounting public debt and rising borrowing costs. As sovereign bond yields put pressure on government finances, Europe's ability to invest in its future is increasingly in question. Meanwhile, deep-rooted structural weaknesses, from poor productivity to a lack of competitiveness, continue to hold the continent back. What needs to change to get Europe back on track? Let's put this question to Mateusz Szurek, head of the IMF's European department, who joins me now in the studio. Good morning and great to have you here. Good morning. So, what is Europe's economic perspective and what should we be worried about? Let's start with good news. First of all, Europe is coping with the latest stress, that is the war in the Middle East and the spike in energy prices, rather well. In fact, the growth has been higher than we feared it would have been. And that is good news. Inflation is higher, but it's not in a runaway path. It's well contained, given the scale of the shock. The bad news is that the potential growth, the long-term growth outlook, remains rather poor. You're talking about 1% expansion that is normal, and that normal is worrying. And Europe needs, and European countries need to work on increasing this potential to increase prosperity of its citizens, to make it easier for the governments to provide public services, and that requires reforms. In several countries, sovereign bond yields have come under pressure. Is this a warning from the markets? Indeed, governments in Europe and across the world, they pay more to service the debt. And this increase is, to some extent, it's global. It's linked with higher prices, higher interest rates, central banks in the world. But there is a local perspective and countries in Europe that have higher public debt, that have more political instability, that have uncertain fiscal prospects, they pay more. And that is a powerful reminder that we cannot run very large budget deficits forever and that public debt needs to be serviced. And the costs of servicing this debt can crowd out other public spending. This brings me to France. Could France become the next weak link in the Eurozone, potentially threatening financial stability across the monetary union? I mean, it's well within France's ability to stabilize and bring down. We'll Bond yields and the cost of servicing public debt, but that requires quick adoption of the 2027 budget. be It requires putting public debt at a sustainable path. right And the elections next year, that brings an ability for France to set the new path in this respect back. and stabilize the situation. So far, it's still an orderly... Yes, the yields are higher, but the markets are functioning normally. Are you worried about the growing political instability in Europe? I mean, looking at France, you mentioned the elections, looking at Spain, where we have elections, looking at Germany. In Europe, we always have elections, so there's nothing to worry about. But maybe not that consequential. There's nothing to worry about. Whatever, I mean, okay, the IMF is never commenting on the elections themselves, but we do comment on policies, and that is rather clear what needs to be done. What needs to be done is to stabilize public debt and make sure that growth... And these growth-enhancing reforms will make also the political tensions within countries much less. When wages grow, when prosperity grows, then the political pressures also fall. There's no shortage in Europe of economic diagnosis. You know, think about the Draghi report years ago. Why is it so painfully slow to implement the recommendations? I mean, growth-enhancing reforms, the ones that influence the way firms do business, the way we pay taxes, they, first of all, they always take time. And they are sometimes less flashy than the big announcement on new spending measure, for example. So it has to be said that a lot is being implemented. across European countries and also in Brussels, so I would say give it time. The thing is that the world is not standing still. The world is changing, the economic structure of European economy needs to change more quickly and European firms indeed lack flexibility and scale. And for that, there is more needs to be done. Coordination is always difficult, but I'm hopeful that the improvement will happen and Europe will be more prosperous. All right. Mateusz Szurek, thank you so much. Thank you very much.