Why ‘healthy’ Europe is still a suitable case for treatment

Date: 22/02/01

By Peter Chapman

DOCTOR Romano Prodi and Europe's leaders meet in Stockholm next month, hoping to find a cure for the economic ills plaguing the world's biggest trading bloc as it bids to outstrip the spluttering but still vigorous US.

On the surface the EU looks a picture of health. The euro is on the up. The economy has weathered the turbulence of stock markets and protests over fuel prices. Unemployment is down, with two and a half million new jobs created. The EU is even set to grow faster than the US over the next couple of years.

But, as the European Commission admits in its report previewing the Stockholm gathering, beneath the surface the prognosis is less reassuring - and a lot of bitter medicine must be swallowed.

"Our relative economic strength must be used to speed up - rather than slow down - difficult reforms," the Commission declares.

With a lavish social security system and labour laws to match, unemployment is still a weakspot. "While new jobs have been created, 14 million people are currently out of work," the Commission adds.

This is despite the fact that industry is keen to recruit in many areas such as telecoms and IT. The problem is finding properly-trained candidates. This month's informal meeting of employment and telecoms ministers focused on chronic labour shortages and skills gaps in many member states, which are often made worse by limits on worker mobility.

Efforts will be made in Stockholm to cut the jobless queues, tool up workers for the needs of the 21st century and boost the free movement of labour, but leaders will also highlight the need for reforms.

For example, the EU executive will need to win support for streamlined methods of regulation in areas where industry is moving faster than the legislative process.

The Commission also wants to wrap up negotiations on the latest round of measures to open postal markets by June, but the end result is likely to disappoint nearly all the relevant players.

Private sector firms are waiting eagerly for a chance to compete in the old monopoly strangleholds, while many state-run post offices are transforming themselves into pan-European logistics giants hungry for foreign business.

The financial services sector is still hampered by barriers to cross-border trade, despite ongoing Commission efforts.

The EU's energy markets are also in need of a good stoking, and Commissioner Loyola de Palacio is pushing a series of measures to liberalise them fully by 2005.

Further down the Stockholm agenda, a raft of other issues cry out for attention. Europe, it will be argued, still fails to reward research, innovation and invention. The evidence shows that businesses invest less than their US counterparts in new technologies and in research.

A key problem remains the lack of a one-stop-shop EU patent system.

A single market for services is also needed, with too many barriers to trade protecting national fiefdoms and discouraging competition. Sectoral state aid continues to plague many member states, at best rewarding inefficiency and increasingly tempting multinationals to relocate to friendlier shores.

The fledgling e-commerce market is riddled with often conflicting regulations that continue to baffle international lawyers - not to mention the small businesses that are supposed to drive growth.

Finally, Europe's airspace suffers from overcrowding and lack of coordination. The situation for passengers is set to worsen, with industry counting the cost in lost productivity as executives spend more time in the departure lounge than the boardroom.

If the EU succeeds in pushing through the reforms being prescribed ahead of its Stockholm physical examination, its economic outlook could be significantly healthier by the end of the year.

Romano Prodi, President of the European Commission, and Europe's leaders meet in Stockholm in March 2001, hoping to find a cure for the economic ills plaguing the world's biggest trading bloc as it bids to outstrip the spluttering but still vigourous US.