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Analysts See Little Chance European Incomes Will Match US

The Paris-based Organization for Economic Cooperation and Development says western Europe's income gap with the United States is widening and is unlikely to narrow anytime soon.

OECD economists say the countries using the euro currency are unlikely to register even two-percent annual growth over the next five years. By contrast, they say the United States economy could expand by over three percent annually over the same period. OECD economist Paul van den Noord says this means that Europe's 30 percent income gap with the United States will widen rather than diminish.

In its latest report on the 12 countries which have adopted the euro as their currency, the OECD identifies structural rigidities as impediments to faster growth. These include costly social welfare payments, high taxation and excessive regulation, problems that will worsen as Europe's rapidly aging population reaches retirement.

Mr. Van den Noord says there are several reasons many west Europeans do not feel poorer than Americans.

"Europeans do seem to attach a bigger weight to leisure as compared to Americans. And as a result you could say that the difference in welfare is probably smaller than 30 percent. Even so, I would still think it is significant," Mr. Van den Noord says.

Mr. Van den Noord spoke by video-conference Tuesday with reporters in Washington.

Another OECD economist, Blair Conley, agrees that comfortable social welfare programs, long vacations and generous unemployment benefits have insulated west Europeans from economic distress.

"Many (west) European economies could be characterized as insider economies," he says. "Whilst growth is slow and unemployment is high at around nine-percent across the euro area, the majority of the insiders have not been directly affected."

Among the euro currency countries, Ireland comes closest to U.S. income standards. On a per capita basis Ireland is only 10 percent poorer than the United States while the gap for Italy, Germany and France exceeds 25 percent.

In its just released forecast for 2006 the OECD says the United States will grow by 3.5 percent while the euro zone will grow by about two percent.