ECB's Tumpel-Gugerell says EU growth disappointing since euro launch

European Central Bank board member Gertrude Tumpel-Gugerell said EU economic growth has been disappointing in the period since the launch of the euro. "A fair assessment of the last seven and a half years of economic developments in Europe cannot avoid mention of the fact that, despite the success of EMU, output growth has been disappointing and below that of Europe's main competitors," she said in a speech. Average growth in the EU's 25 member states has been about 2.3 pct since 1995, compared with about 2.7 pct in non-EU industrial countries and 3.3 pct in the US, she said. This growth gap is one of the main arguments for structural reforms to make the EU economy more flexible, innovative and competitive, she said. Increased innovation can play a particularly important role in boosting growth, she said. A 1 percentage point increase in research and development as a share of GDP is estimated to increase the long-run growth rate of productivity by 0.6 percentage points, she said. A key factor in fostering economic growth through innovation is the availability of financing opportunities, she said. At the recent informal Ecofin meeting in Helsinki, EU finance ministers stressed the importance of creating an environment conducive to private capital investment in innovation and invited the ECB to assess the institutional features that hinder the efficient functioning of the financial system, she noted. Tumpel-Gugerell said financial integration will also be positive for growth. "Progress in EU financial integration since the introduction of the euro...has generally improved financing conditions for European firms, with substantial benefits expected for Europes growth performance," she said. But she added: "Based on the evidence available, financing opportunities for investment in innovation appear to be more constrained at the level of small and medium-sized enterprises and individual entrepreneurs." And EU citizens do not yet appear to appreciate the benefits of financial integration and of monetary union, she said. "The rejection of the European constitution by the people of the Netherlands and France...sent quite a strong signal that European citizens do not fully perceive and reap all the potential benefits of EMU or of the financial integration process it has triggered," she said. While financial integration in Europe has increased, the EU banking market remains fragmented, which reduces its efficiency, she said. In contrast, banking deregulation in the US has had positive effects on growth and productivity, she said.