Brussels, Jan 25 (IANS) The European growth model based on trade and finance has brought about prosperity but also needs modifications, a World Bank official said Tuesday.

“Europe has to make adjustments to its economic model, not abandon it,” said Philippe Le Houerou, the World Bank’s vice president for Europe and Central Asia, at a seminar in Brussels releasing a report on the efficiency of the European growth model.

The report, “Golden Growth: Restoring the Lustre of the European Economic Model”, said the European economic model has created prosperity through high volumes of trade and financial integration, reported Xinhua.

“Europe invented a convergence machine taking poor countries and helping them become high income countries,” said Indermit Gill, World Bank’s chief economist for Europe and Central Asia, at the seminar, jointly held with Brussels-based think tank Bruegel.

“Almost half of world trade is realised with or within Europe. Also, in Europe, we see the largest capital flows in the world and possibly in history,” added Gill.

However, the World Bank report, covering 45 European countries, also said that bloated governments and low productivity are actually dragging European economies behind.

Europe should also cut expenditure in social protection, namely pensions, unemployment insurance and social welfare, said the report.

Europe’s spending on its social safety net accounts for 58 percent of the world’s total between 2004 and 2009, according to the report. Faced with adverse debt dynamics and an aging population, this has become unaffordable, said the World Bank.

Europe also needs more investment on research and development intensive industries to stay competitive with the US and the emerging economies.

The gap in terms of labour productivity between the southern European countries and their northern counterparts is also excessive, said the report.

“Southern enterprises are too small to attract foreign direct investment (FDI) and to internationalize their field of action. Also, in countries such as Italy and Greece, the business climate is bad, and they are simply not competitive anymore,” said Martin Raiser, World Bank country director for Turkey.