By Alasdair Murray
published in Progress Magazine
At the Lisbon summit in 2000, EU leaders signed up to an ambitious economic reform programme: the Lisbon agenda, designed to close the economic gap with the US. Member-states agreed to make their labour markets more flexible, to stimulate innovation, encourage entrepreneurs, spend more on research and development and complete the single market. However, four years on, it is clear that the EU had little chance of achieving its overall goal of becoming 'the world's most competitive and dynamic knowledge-based economy by 2010'.
Rather than catching up with the US, the EU economy is slipping further behind. According to commission data, the average US citizen is nearly 40 per cent richer than the average EU inhabitant. US growth continues to outstrip that in the EU by a wide margin. Average EU growth since the launch of the Lisbon strategy in 2000 has been a paltry 1.75 per cent, well below Lisbon's official target of three per cent.
Other targets look equally out of reach, including those on education, innovation and entrepreneurship - exactly the things that the EU should be concentrating on to boost its future growth performance. The EU as a whole would have to double spending on research and development to reach its three per cent of GDP target by 2010. The EU has made headway in opening up its markets for telecoms, energy and financial services, but progress has often been slow and patchy.
The EU's worst performance, however, has been in job creation. In 2003 the EU saw its first net job losses since 1994, taking the unemployment rate to an average of eight per cent in the EU-15. The EU will almost certainly miss its key Lisbon target of raising the employment rate to 70 per cent of the labour force by 2010: the enlarged EU would have to create a total of 22 million new jobs to meet the target.
A rapidly ageing society will make the achievement of Lisbon tarets even more difficult. Many countries have started pension reform, but much more needs to be done to keep workers in the labour market for longer and put state-funded pension systems on a sustainable financial footing.
Nevertheless, it would be wrong to write the Lisbon programme off as a failure. The EU can point to some notable successes, for example the rapid spread of cutting-edge technologies and the opening of previously cosy national markets for energy or banking.
The much-criticised 'open method or co-ordination' - a process of benchmarking and peer pressure that is at the heart of the Lisbon strategy - has encouraged EU members to shop around for the best reform models. And while many EU countries certainly need to redouble their efforts, others, in particular the Nordic countries, have already overtaken the US on many indicators of innovation, education and competitiveness.
The upcoming mid-term review of the Lisbon strategy will be an occasion for much soul searching and self-flagellation. But the EU should resist changing its Lisbon targets even if these look overly optimistic in the light of the EU's mediocre recent performance. Instead, the EU should take the opportunity to refocus the Lisbon strategy on those measures that are critical for boosting job creation and overall growth.
The EU also needs to think more carefully about how to integrate the new members from central and eastern Europe into its Lisbon reform programme. On the one hand, the newcomers will make it harder for the EU to meet its targets. Their employment numbers, for example, are worse still than those in Germany or France. But, on the other hand, as fast-growing, fast-reforming countries, the east Europeans will also bring new momentum to the Lisbon process.
The UK should see enlargement as an opportunity to revive the Lisbon process. Britain's good performance on most Lisbon targets (with the notable exception of poverty reduction) gives the necessary credibility and authority. The UK should also push its EU partners to appoint a dedicated Lisbon commissioner to oversee the reform process, and remind member-states of their commitments.
Alasdair Murray is director of business and social policy at the Centre for European Reform
Centre for European Reform © CER 2004