Frankfurt – In a push to strengthen Europe’s economic competitiveness, the European Central Bank (ECB) released a study showing that the EU could close roughly a third of its productivity gap with the United States simply by having more large firms. The analysis, released on Wednesday, adds a fresh voice to ongoing calls for reforms that make it easier for businesses to grow beyond national borders.
Productivity gap and the role of firm size
Academic research cited by the ECB indicates that EU workers produce about 20% less output per hour than their U.S. counterparts, a disparity that has persisted since the mid‑1990s when the two regions were almost on equal footing. The ECB’s staff modelled a scenario in which Europe’s distribution of large and small firms mirrored that of the United States, while keeping each firm’s productivity level unchanged. Under those assumptions, the productivity gap would shrink by roughly one‑third.
Large firms are markedly more productive than smaller ones. Companies employing at least 250 people generate an average of €86,800 in value added per worker each year, whereas firms with fewer than ten employees produce less than half that amount. The ECB argues that the EU’s weaker performance also reflects lower rates of innovation, fragmented regulation, and under‑developed capital markets, all of which hinder companies from scaling up and competing globally.
Introducing “EU Inc.”
To address these structural barriers, the ECB endorsed the proposed “EU Inc.” framework – a continent‑wide corporate law regime modeled loosely on Delaware’s corporate system in the United States. EU Inc. would create a single legal structure that operates across all 27 member states, bypassing the patchwork of national company‑law systems and dozens of corporate forms that currently exist.
“EU Inc. has the potential to support the Single Market, by strengthening competition, innovation and productivity growth,” the ECB said in its statement. By offering a uniform set of rules for incorporation, governance and cross‑border operations, the framework aims to reduce administrative costs, simplify capital‑raising, and encourage entrepreneurs to expand beyond their home country.
Implications for European businesses and workers
If adopted, the EU Inc. model could make it more attractive for small and medium‑sized enterprises to grow into larger, more productive entities. A larger base of big firms would not only raise average productivity per worker but also generate higher wages, more research and development spending, and stronger tax revenues for national budgets.
European policymakers have already signaled support for measures that improve access to finance, streamline regulatory approvals, and deepen capital markets. The ECB’s endorsement of EU Inc. aligns with those efforts, suggesting a coordinated push to remove the “fragmentation” that has long been cited as a drag on Europe’s economic dynamism.
Challenges and next steps
Implementing a Europe‑wide corporate regime will require agreement among member‑state governments, which have historically guarded sovereignty over company law. Critics warn that a one‑size‑fits‑all approach could overlook national legal traditions and consumer protections. The ECB, however, stresses that the framework would be flexible enough to accommodate local nuances while still delivering the core benefits of uniformity.
Stakeholders, including business associations, venture‑capital firms, and labor unions, are expected to weigh in during the forthcoming consultation period. The ECB plans to release a detailed legislative proposal later this year, with the goal of having the EU Inc. law in force before the next European Parliament term.
Looking ahead
Closing the productivity gap with the United States is a long‑term ambition for Europe, and the ECB’s latest study underscores the importance of firm size in that equation. By championing a unified corporate structure, the central bank hopes to unlock the scaling potential of European enterprises, foster innovation, and ultimately raise living standards for workers across the bloc.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
