Only lip-service being paid to Lisbon plans

Date: 01/04/04

THE Spring European Council was originally supposed to be about the regular update on progress towards the Lisbon Agenda goals.

Given the recent terrorist attacks in Spain, it is fully understandable that an entire day should have been devoted to combating terrorism and that some important decisions to this end were actually taken under the pressure of events.

The summit could have used the current situation as an excuse to steer clear of 'Lisbon', thus avoiding the obvious embarrassment deriving from the poor results achieved so far. Instead, the member states decided to issue an 18-pages-long document, which is complacent in its analysis and does not contain any concrete step that would bring the EU closer to the stated target of becoming the most competitive knowledge-based economy by 2010.

The most eye-catching part of the summit's conclusions is the institution of an ad hoc committee, under the chairmanship of former Dutch prime minister Wim Kok, to contribute to the mid-term review of the Lisbon process planned for 2005. Not so long ago, Kok chaired another high-level group, on employment, which delivered very useful recommendations.

Unfortunately, the problem for the EU economy and the Lisbon process is not a lack of good policy recommendations, but the fact that most member countries, especially the big three of the eurozone, tend to ignore them when it comes to taking concrete decisions.

The millions of Italians demonstrating against a much-needed pension reform illustrate this insurmountable obstacle: finely worded summit conclusions and the entire Lisbon paraphernalia are of next to zero value in pushing through the reforms that everybody knows are needed to get the EU economy going again.

In terms of economic decisions, the Spring summit brought one mild surprise: the limits on fiscal deficits set by the treaty and the Stability and Growth Pact were confirmed without any qualification. France and Germany have now another political obligation to fulfil their commitment to bring their deficits below 3% by next year. It will be interesting to see whether the Kok group will dare to address this issue.

With regard to competitiveness, it is worrying to see that the European Council flatly declares that "de-industrialization remains a risk". The fact that the Commission is requested to draft a paper containing proposals on how to increase the competitiveness of European industry is a dangerous sign: most of the improvement in the productivity performance of the US economy in recent years has come from services, not from industry.

The share of the labour force engaged in industry has been shrinking in all developed countries over the last 40 years. De-industrialization is thus an unavoidable long-term trend and it so happens that within the EU the worst performing economies are those in which rigid labour markets and regulations have preserved a share for industry in the economy which equals that of the US of more than a decade ago. Any attempts to strengthen European industry could come only at the expense of the rest of the economy, ie services.

Taxing the future to preserve the past has been done before, as with the common agricultural policy (CAP), but it is hardly a recipe for faster growth.

The rest of the economic agenda consists mainly of wishful thinking ("member states must renew their commitment"), sometimes it states the obvious (better regulation: who would be against?) or standard EU business (implementing parts of the internal market).

There is one curious omission: when talking about research and development (R&D), the summit confirmed the Lisbon targets, as usual without indicating how these should be reached in concrete terms, but it forgot to mention the fact that European public R&D spending is rather inefficient.

It is not difficult to see why: around 95% of R&D spending in Europe is done by member states. Almost all of the national spending is reserved for national recipients, such as universities or specialized research institutions. It would have been natural to start applying the internal market rules to this sector as well and force member countries to open their spending on R&D to EU-wide competition.

This would be a small, but concrete step to strengthen the knowledge economy in Europe.

More competition in this area would certainly increase the efficiency of spending, not an unimportant consideration in these times of budgetary problems that make it highly unlikely that the Lisbon goal of R&D spending of 3% of gross domestic product will actually be reached.

Finally, the summit's conclusions become hypocritical in the two paragraphs devoted to "enhancing the free movement of workers". There is no mention of the fact that most of the current EU-15 will make use of the option to exclude workers from the ten new member countries for up to seven years. This transition period is legally valid since it was agreed beforehand and it is similar to the restrictions faced by Spanish and Portuguese workers when their countries entered the EU around 20 years ago.

But this was long before the single market or the Lisbon process was invented. It is true that a lot can be done to improve mobility even among the current member states.

A gradual strategy to render social security and health insurance schemes compatible thus makes sense. But what is unacceptable is to focus exclusively on the remaining minor obstacles to mobility among the EU-15 while these countries maintain a fence against mobility from the ten new member states.

It will be interesting to see how the European Council will update the Lisbon goals to an EU of 27 members (once Bulgaria and Romania join in 2007). Since there will be no common labour market, potentially until 2013, way beyond the Lisbon target date of 2010, the only economically coherent conclusion would be to have different targets for the old and the new Europe - hardly auspicious for the goal of creating the greatest integrated market in the world.

• Daniel Gros is director of the Brussels-based Centre for European Policy Studies. www.ceps.be

The author, Director of the Centre for European Policy Studies, believes European Union leaders are dithering in their efforts to make the European Union the world's leading knowledge-based economy by 2010.

http://www.ceps.be http://www.ceps.be

http://consilium.europa.eu/ueDocs/cms_Data/docs/pressdata/en/ec/79696.pdf http://consilium.europa.eu/ueDocs/cms_Data/docs/pressdata/en/ec/79696.pdf

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