The potential growth rate in the EU Member States has been declining and lagging behind their competitors since the 1990's. Due to severe productivity problems in the EU (first of all the significant decrease in the total factor productivity dynamics) and the insufficient adaptation to the processes of globalisation, further remarkable and permanent decline in the potential growth rate is expected. Paradoxically the potential growth rate might decrease in the long run to a greater extent in the new Member States. As a result of the present global economic crisis new risks might appear. The riskss of the recurrence of shocks are significant. These factors project further erosion of the European growth potential. Integrated structural reforms and a comprehensive review of the European model are needed in order to overcome the unfavourable trends and put Europe on a more favourable growth path than the one indicated in this study.

Journal of Economic Literature (JEL) classification: F15, F43