Quoted from the CPB website:
Europe’s future is uncertain. Even more uncertain than long-run developments in demography, ICT, and individualisation are the responses to them by societies. To get a grip on this uncertainty, the underlying study develops four alternative scenarios on the future of Europe. The scenarios – Strong Europe, Global Economy, Transatlantic Market and Regional Communities – combine alternative assumptions regarding the two key uncertainties: international cooperation and the response by governments to the pressure on the welfare states.
Reforming the process of EU decision-making lays the foundation for a successful, strong European Union. The enlargement is a success and integration proceeds further, both geographically, economically and politically. Strong Europe is important for achieving broad international cooperation, not only in the area of trade but also in other areas such as climate change.
European countries maintain social cohesion through public institutions, accepting that this limits the possibilities to improve economic efficiency. Yet, governments respond to the growing pressure on the public sector by undertaking selective reforms in the labour market, social security and public production. Combined with early measures to accommodate the effects of ageing, this helps to maintain a stable and growing economy.
Economic integration becomes broader as countries find it in their mutual interest. Closer cooperation in non-trade areas is not feasible as governments assign a high value to their national sovereignty in these areas. The problem of climate change is not tackled while European taxes on capital gradually decline under the pressure of tax competition.
National institutions are increasingly based on private initiatives and market solutions. European governments concentrate on their core tasks, such as the provision of pure public goods and the protection of property rights. They engage less in income redistribution and public insurance so that income inequality grows.
Countries primarily focus on national interests. Reforms of EU decision making fail. Instead, the European Union redirects its attention to the United States; they agree upon transatlantic economic integration. This yields welfare gains on both sides of the Atlantic, sharpening the split between the club of rich countries and the group of developing countries.
European countries limit the role of the state and rely more on market exchange. This boosts technology-driven growth. At the same time, it increases inequality. The heritage of a large public sector in European countries is not easily dissolved. New markets, e.g. for education and social insurance, lack transparency and competition. The elderly dominate political markets. This makes it difficult to dismantle the pay-as-you-go systems in continental Europe.
The European Union cannot adequately cope with the Eastern enlargement and fails to reform her institutions. As an alternative, a core group of rich European countries emerges. More generally, the world is fragmented in a number of trade blocks and multilateral cooperation is modest.
European countries rely on collective arrangements to maintain an equitable distribution of welfare. At the same time, in this scenario governments are unsuccessful in modernizing welfare-state arrangements. A strong lobby of vested interests blocks reforms in various areas. Together with an expanding public sector, this puts a severe strain on European economies.
The four scenarios have been translated into quantitative sketches, using a macroeconomic model for the world economy. The table below shows these quantitative sketches. GDP grows between 0.6% per year in Regional Communities to 2.5% per year in Global Economy. Scenarios with the highest growth show the poorest performance in terms of income equality and environmental quality.
The report is available online: Four Futures of Europe