Labour markets must be liberalised, product markets opened, innovation unshackled—or so the IMF tells us.
The goal is to close productivity gaps and spur growth across the bloc. But behind the jargon lies a weary truth: this is the same neoliberal prescription the Fund has pushed for decades, and it has failed to deliver lasting prosperity whenever it has been tried.
The IMF is right about one thing. Europe is stagnating. Productivity growth is anaemic; its firms lag behind American and Asian competitors; southern and eastern economies are shackled by inefficiency. But the Fund’s solution—a sweeping programme of deregulation and labour “flexibility”—is dangerously detached from reality. It ignores the social contract that underpins European life, and it underestimates the political turmoil that such reforms would unleash.
Labour market reform is the clearest example. In IMF speak, this means stripping away job protections, expanding temporary contracts, and giving firms more freedom to hire and fire. But job security in countries like France, Spain, and Italy is not a historical accident—it is the product of long struggle, built on societies wary of inequality and instability. Dismantle that, and you will stoke the fires of populism already burning from Paris to Warsaw.
France offers the perfect cautionary tale. Emmanuel Macron’s labour reforms—designed to make hiring easier and firing less costly—were championed by Brussels and applauded in Washington. Yet they provoked furious resistance, with the gilets jaunes protests paralysing the country. Productivity barely budged, while political legitimacy took a hammering.
The same pattern played out in Greece. During the eurozone crisis, the IMF and EU forced Athens to impose savage labour deregulation, privatisations, and welfare cuts as the price of bailout loans. The result? A generation of young Greeks forced abroad in search of work, a collapse in living standards, and an economy still struggling to recover more than a decade later. Far from boosting growth, these “reforms” hollowed out the country and fuelled a populist revolt against Europe’s elites.
Nor is the IMF’s vision of market liberalisation any more convincing. Brussels already presides over one of the most open economic blocs in the world. Forcing yet more deregulation risks empowering multinationals while crushing local businesses. Worse still, applying uniform policies to a continent as varied as Europe is a recipe for disaster. A measure that boosts Dutch competitiveness might simply entrench oligarchic capture in Bulgaria, where institutions are fragile and oversight weak. The Fund seems blind to this nuance.
Innovation reform, meanwhile, is the holy grail of every technocrat in Brussels. Europe must become “the next Silicon Valley,” we are told. But culture, history, and risk appetite cannot be rewritten by decree. The EU’s fragmented markets, linguistic diversity, and heavy-handed regulators have all contributed to its failure to produce global tech giants. No amount of IMF white papers will conjure them out of thin air.
Here lies the deeper problem: the IMF’s sermon finds such a receptive audience in Brussels precisely because it mirrors the European Commission’s own instincts. Unelected officials in the Berlaymont are forever demanding “reform” from member states, wielding threats of sanctions or withheld funds. In practice, this means gutting national protections, pushing through unpopular liberalisations, and ticking boxes for the sake of Commission scorecards. The result is mounting resentment in national capitals, where governments are forced to sell IMF- and Commission-designed sacrifices to voters who never asked for them.
It is this democratic deficit that makes the whole enterprise so combustible. Reform imposed from above may satisfy Brussels and Washington, but it corrodes legitimacy at home. Populists thrive on this discontent, from Giorgia Meloni in Rome to Marine Le Pen in Paris, and they are only too happy to paint “structural reform” as code for job losses, higher bills, and distant elites telling ordinary people how to live.
Europe does need reform—but not of the IMF variety. It needs to stop throttling small and medium-sized businesses with red tape while coddling corporate behemoths. It needs capital markets deep enough to rival Wall Street, not endless rules designed to serve Paris and Frankfurt. And it needs an innovation strategy that spreads opportunity beyond Berlin or Stockholm to the industrial rust belts and neglected regions where resentment against Brussels festers.
Growth is vital, yes. But if it comes at the expense of Europe’s social fabric, it will be self-defeating. The IMF and the Commission alike behave as though prosperity can be engineered by technocrats armed with spreadsheets. What they miss is legitimacy. Unless reforms command the consent of the governed, they will not endure. They will simply deepen the chasm between citizens and elites.
The EU should beware of swallowing Washington’s recipe without question. Deregulate, liberalise, repeat—this is the IMF’s old song, and it is now Brussels’s chorus line too. It has brought Europe little more than stagnation, unrest, and political upheaval. Real reform must come from within, tailored to Europe’s diversity, rooted in its democratic traditions, and mindful of its people’s sense of fairness. Anything else is just another technocratic fantasy—one that risks accelerating the very decline the Fund and the Commission claim to prevent.
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