european view - volume 1 - spring 2005 - europe's economy and the challenge of growth

EUROPEAN VIEW

Wilfried Martens Editorial • Antonio López-Istúriz Preface • José Manuel Durão Barroso Working Together for Europe’s Future: A New Start for the Lisbon Strategy • Angela Merkel Tapping Germany’s Potential for a Prosperous Europe • José María Aznar Europe’s Challenge for Growth: The Path to Follow • Jacques Barrot Mobility - a Key Element for Growth and Competitiveness • Joe Borg Relaunching the Lisbon Strategy - a Contribution from Fisheries and Maritime Affairs? • Stavros Dimas Creating Growth and Jobs - a Role for Environment and Sustainable Development? • Ján Figel' Education and Training – Are We on Target for 2010? • Viviane Reding Towards the Knowledge-based Economy: Information Society • Andris Piebalgs The Lisbon Strategy and Energy: Making the Connection • Ivan Mikloš Commentary: Europe and the Need for Reforms • Alexander Radwan Lisbon - the Scapegoat: How France and Germany Bailed Out from the Stability Pact • John Bruton The Challenge of Lisbon for the European People’s Party • Carl Bildt Accelerating Globalisation - Is Europe Destined for Decline? • Alexander Stubb Efficient Execution of the Lisbon Strategy: The Balance Between the Community and the Open Method of Coordination • Mário David Building Global Growth - Relations Between the European Union and Mercosul • Erhard Busek The Future of Economic Reconstruction, Development and Cooperation in South Eastern Europe • Peter Jungen Entrepreneurs in Europe: A Vision of Prosperity • Bartho Pronk The Lisbon Process- Impossible Dream?

EUROPE’S ECONOMY AND THE CHALLENGE OF GROWTH

Volume 1 - Spring 2005

A Journal of the Forum of European Studies

EUROPEAN VIEW

European View is a Journal of the Forum of European Studies, published by the European People’s Party. European View is a biannual publication that tackles the entire spectrum of Europe’s political, economic, social and cultural developments. European View is an open forum for academics, experts and decision-makers across Europe to debate and exchange views and ideas.

EDITORIAL BOARD Chairman: Wilfried Martens, President of the European People’s Party, former Prime Minister, Belgium

Carl Bildt, former Prime Minister, SwedenElmar Brok, Member of the European Parliament, Germany John Bruton, Vice-President of the European People’s Party, IrelandMário David, Member of Parliament, PortugalVicente Martínez-Pujalte López, Member of Parliament, Spain Loyola de Palacio, former Vice-President of the European Commission, SpainChris Patten, former Member of the European Commission, United KingdomJan Petersen, Foreign Minister, NorwayHans-Gert Poettering, Chairman of the EPP-ED Group in the European Parliament, Germany Alexander Stubb, Member of the European Parliament, Finland József Szájer, Vice-Chairman of the EPP-ED Group in the European Parliament, Hungary Andrej Umek, former Minister for Science and Technology, Slovenia Per Unckel, former Minister of Education and Science, SwedenYannis Valinakis, Deputy Foreign Minister, Greece ADVISORY BOARD Antonio López-Istúriz, Christian Kremer, Luc Vandeputte, Kostas Sasmatzoglou, Guy Volckaert, Alexandros Sinka

EDITOR-IN-CHIEFTomi Huhtanen

Assistant Editors:Ben Priestel, Mélanie Dursin

For editorial inquiries please contact:European ViewEditor-in-ChiefRue d’Arlon 671040 Brusselsemail:[email protected]. +32 2 285 41 49Fax. +32 2 285 41 41Url: www.epp-eu.org/europeanview

The Forum of European Studies is a think-tank dedicated to Christian Democrat and like-minded political values, which is engaged in open, comprehensive and analytical debate.

European View and its publishers assume no responsibility for facts or opinions expressed in this publication. Articles are subject to editing and final approval by the Editorial Board.

This publication is partly funded by the European Parliament.

European View2

CONTENTS

• Preface .............................................................................................................................................................................................................5 Antonio López-Istúriz • Editorial ..........................................................................................................................................................................................................7 Wilfried Martens • Working Together for Europe’s Future: A New Start for the Lisbon Strategy ...................................................9 José Manuel Durão Barroso • Tapping Germany’s Potential for a Prosperous Europe .............................................................................................15 Angela Merkel • Europe’s Challenge for Growth: The Path to Follow .....................................................................................................21 José María Aznar • Mobility - a Key Element for Growth and Competitiveness ......................................................................................29 Jacques Barrot • Relaunching the Lisbon Strategy - a Contribution from Fisheries and Maritime Affairs? .................35 Joe Borg

• Creating Growth and Jobs - a Role for Environment and Sustainable Development? .........................41 Stavros Dimas • Education and Training – Are We on Target for 2010? ............................................................................................45 Ján Figel'

• Towards the Knowledge-based Economy: Information Society ............................................................................53 Viviane Reding

• The Lisbon Strategy and Energy: Making the Connection .......................................................................................61 Andris Piebalgs • Commentary: Europe and the Need for Reforms ............................................................................................................65 Ivan Mikloš

• Lisbon - the Scapegoat: How France and Germany Bailed Out from the Stability Pact .....................67 Alexander Radwan • The Challenge of Lisbon for the European People’s Party .........................................................................................71 John Bruton • Accelerating Globalisation - Is Europe Destined for Decline? ................................................................................79 Carl Bildt • Efficient Execution of the Lisbon Strategy: The Balance Between the Community and the Open Method of Coordination ...........................................................................................................................................83 Alexander Stubb • Building Global Growth - Relations Between the European Union and Mercosul .................................91 Mário David

• The Future of Economic Reconstruction, Development and Cooperation in South Eastern Europe ..................................................................................................................................................................95 Erhard Busek

• Entrepreneurs in Europe: A Vision of Prosperity .........................................................................................................103 Peter Jungen • The Lisbon Process - Impossible Dream? ............................................................................................................................109 Bartho Pronk

3Volume 1 - Spring 2005

Preface

By Antonio López-Istúriz

Dear Readers,

It is with great pleasure that I present to you the ‘European View’, the Journal of the Forum of European Studies, which will be published biannually from now on.

The European View is a forum for dialogue for European decision-makers and academics, which tackles issues relevant to contemporary European politics. The Journal is also an open medium for people debating Christian Democrat and like-minded values, ideas and solutions. The concept of a shared European view was, just a few decades ago, only a theoretical possibility argued by a few ‘romantic’ visionaries.

Nevertheless, our political family has managed to make this vision a reality. From the days of our founding fathers until today, we have finally succeeded in creating a common identity for all European citizens.

Indeed, most Europeans share a common vision about the future of our continent and the world in general. For many, this evolution is firmly linked to the institutional development of the European Union. Undoubtedly, the European Union embodies the shared identity of Europeans and, therefore, offers an alternative perspective in global affairs.

In economics - the theme of the first edition of the European View - Europeans are increasingly facing more of the same problems and the same challenges. Hence, in order to find the right solutions, we need to find a common approach with a common view, a European View, a shared vision that will coordinate our efforts for the prosperity and well-being of Europe and its citizens. Looking at the contents of the first edition of the European View, I am convinced that this new publication is bound to reinforce the dialogue for common approaches in Europe and, ultimately, help fulfill the vision of a united Europe.

I would like to thank the Authors of this edition for their valuable contributions, as well as the Editors, Advisors, and the entire team for their commitment and ideas. Furthermore, for those who would like to join our efforts, I would like to extend an open invitation for new concepts and ideas for future editions of the European View.

Antonio López-IstúrizSecretary General of the European People’s

Party, Member of the European Parliament.


There are many reasons to be optimistic about the European economy. 2004 was the best year for global GDP growth in decades. Most parts of the world recorded improved growth per-formance. The prospects for 2005 remain favo-rable, although growth is likely to improve at a slower, more sustainable, pace. Global trade has also recovered strongly since the downturn of 2001 and, while it continues to be an important engine for growth, it is currently expanding at close to double the rate of GDP world growth1.

Europe is slowly recovering and the foreseeable future looks brighter for European economies. Nevertheless, we are obligated to openly ad-mit that the European Union is lagging behind its competitors. In March 2000, the European Council concluded that a strategy was neces-sary to ensure that European economies would continue to prosper. A major effort was needed by the EU, in order for the continent to perform in a rapidly changing global economy.

The Action and the Strategy were clearly set at the Lisbon Council. As a result, Europe made a commitment to itself and its citizens; a commit-ment for prosperity and growth. Unfortunately, the failure of this commitment is well known and is, therefore, thoroughly debated in this publication. But nothing is lost yet; all the ele-ments of success are still there.

Europe, today, is the largest economy in the world, together with the United States. It is the largest trading partner in the global economy and still one of the largest receivers of foreign

investments. Both enlargement and the euro were two pivotal structural changes that have increased competition in the European econo-my and added to its productivity. The changes brought about with the introduc-tion of the euro are continuing to bolster the Eu-ropean economy. They will, in due course, lead to quite dramatic improvements, but it will take time. Europe has prevailed over many crucial challenges and, therefore, the potential exists for a new, prosperous chapter in the European economy.

The fact that the Lisbon Strategy is at the center of agenda of the new Commission, led by Presi-dent José Manuel Durão Barroso, gives us new confidence and new hope. The forming of the Lisbon Strategy Commissioners Group and the launching of the ‘Growth and Jobs’ strategy, were strong signs of the Commission’s renewed commitment.

There is no denying that the Lisbon Strategy was partially based on wrong assumptions on the fu-ture of economic growth. But limited economic growth was, for the most part, just an excuse to sidetrack our actions. Now, our task is to con-vince European societies that we cannot afford any more failures or policy deviations. On the other hand, failure of the Lisbon Process – and the ‘Growth and Jobs’ Strategy - will cost us mil-lions of jobs and vital economic growth.

The ageing of our societies and the overall de-mographic changes will create new realities

Editorial

By Wilfried Martens

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1 International Monetary Fund: Economic Summit, Stanford, California, February 11, 2005


for the European economies in years to come. Globalisation, the emerging economic powers of Asia and changes of employment distribution on a global scale will constantly challenge us and our capacity to find new solutions for the safeguarding of European prosperity.

Leadership in the global economy is not only about competitiveness but also about credibil-ity. Abandoning the Lisbon Goals would only undermine our global prestige.

Not surprisingly, European decision-makers to-day agree on the need for radical reforms in the economies of EU Member States. However, structural changes are never easy and the posi-tive results of reform never come quickly. Mean-while, many different interests and concerns have to be tackled and citizens reassured.

More importantly, we should intensify our ef-forts but, not for the sake of the economy itself -our main concern is the future and well-being of Europeans. The European citizen deserves a prosperous future in a modern society, with bet-ter jobs in a world-class market.

This first edition of the European View, the Journal of the Forum of European Studies, is dedicated to the current challenges for growth creation and economic development in Europe. I would, therefore, like to take this opportunity to warmly thank the Authors of this edition for their analytical insights and visions and all those who have worked tirelessly for the success of the European View.

Wilfried Martens, former Prime Minister of Bel-gium, is the President of the European People’s Party and the Chairman of the Editorial Board of the European View.

European View8

Over recent months the European Council has presented two impor-tant sets of proposals. In January in its pro-posed Strategic Priori-

ties for the Union over the coming five years1, it launched the idea of a partnership for the re-newal of our continent; a partnership for pros-perity, solidarity and security.

Early in February, it started to put flesh on the bones of that partnership in presenting its new Strategy for Growth and Jobs in the European Union2. This represents a fresh start for the Lis-bon agenda, launched in March 2000.

The Commission’s starting point is the need to restore dynamism to our economy and create the conditions to boost employment. These are concerns that matter to every citizen. These must be the solid foundations of a society built on social justice, quality of life and opportunity for all.

The challenge is to spark the renewed European growth that will allow the Union to reinforce its commitment to solidarity and sustainability.

The Commission’s underlying conviction is one of realistic optimism; the Union possesses all the ingredients to free Europe’s untapped potential. The mid-term review of the Lisbon Strategy is simply the moment to “turn up the heat”.

Europe has a lot to be proud of. It is peaceful, prosperous and diverse. Today it is the largest economy in the world together with the United States. It is the world’s largest trading partner and one of the largest recipients of foreign in-vestments. It is also attractive; to countries want-ing to join, to businesses wanting to invest, to people wanting to work or visit.

Progress has been made, but it has been nei-ther fast nor far enough Five years ago the European Union launched an ambitious agenda for reform. It has become fashionable to argue that nothing has been achieved over the intervening years. That, of course, is not the case.

First, progress has been made in strengthening key parts of the internal market – telecoms and energy markets are more open, a Single Euro-pean Sky is in the process of being established, Europe’s trans-European transport networks are advancing (with renewed support from the European Investment Bank). In other areas of the internal market, from public procurement to electronic commerce, the necessary legal frame-work has been put in place. These reforms are starting to deliver lower prices and new oppor-tunities for jobs and investment. Second, reforms are underway in most Member States, from a downward trend in income tax levels to the development of active labour mar-ket policies to pension reforms and investment in childcare.

Third, we have seen the arrival of the euro in people’s pockets and our recent enlargement is opening new markets, spreading prosperity and presenting fresh opportunities for investment.

At the same time it is clear that despite substan-tial progress, not enough has been done. The gap with our major competitors is both widen-ing, if we look across the Atlantic and narrow-ing, as new Asian economies start to catch up. Reforms at both the EU and national levels have neither gone fast nor far enough, with key pro-posals – such as the patent or the creation of a single market for services – remaining on the table of Parliament and the Council. Moreover,

Working Together for Europe’s Future: A New Start for the Lisbon Strategy

By José Manuel Durão Barroso

1 STRATEGIC OBJECTIVES 2005 – 2009, Europe 2010: A Partnership for European Renewal Prosperity, Solidarity and Security, COM(2005) 12, 26.1.2005

2 Working together for growth and jobs - A new start for the Lisbon Strategy, Communication to the Spring European Council, COM (2005) 24, 2.2.2005

José Manuel Durão Barroso


some Member States have dragged their feet in implementing rules of reforms already agreed upon. The result has been that people do not yet feel “the Lisbon factor” in their daily lives.

The urgent need for change

Yet the case for change, in the face of global competition and an ageing population is, if any-thing, even stronger today than it was in 2000 when the Lisbon reforms were launched:

• Today Europe’s potential growth aver-ages only 2%. This is a decline of one full percentage point in just one genera-tion. During the same period, the United States has increased its potential growth to 3.5%, and the dramatic rise of new econ-omies like India and China continues.

• Globalization. It is a crucial and inevi-table development that no government can control because globalization is, to a large extent, shaped by technologi-cal progress, which fortunately cannot be brought to a halt by individual governments.

As a result of globalization, global com-petitiveness has been increasing since 2000. New global partners have emerged more rapidly (China in the industrial sec-tor, India in the services sector), while the US and Japanese economies have recovered more quickly than Europe.

• Our ageing population will have far reaching consequences, some of which are already strongly felt on our labour markets, health spending and pension systems; this car-ries with it the risk of weakening our social model. One consequence of ageing is that our population, particularly, our working age population is shrinking. Some estimates, suggest that the Italian population will by 2040 have fallen from 52 million in 1990 to just 38 million. Change on this scale calls into question future growth and our abil-ity to maintain high rates of employment.

• Moreover, our growth potential has suf-fered because our productivity has not grown as rapidly as that of our competi-tors; this has been compounded by a lack

of business investment. This is particularly true for the slower adaptation of infor-mation and communication technologies throughout the economy. This difference is estimated to account for around half of the EU-US productivity growth gap.

• Finally, enlargement is also creating a major challenge for social cohesion and for the convergence of our economies.

Nonetheless, this is not about facts and figures, this is about real lives. Already, far too many people in Europe who are looking for a job cannot find one. There is widespread denial of opportunity, particularly to women and young people. Furthermore, we are, as of now, strug-gling to pay for under-funded pensions and costly health care.

To meet these challenges, we need to take ur-gent action. We must catch up for lost time. Only by pulling together and working along the same lines can we maximize EU’s potential.

The refocused Lisbon Strategy must provide growth and jobs

While maintaining stability-oriented macro-eco-nomic policies, which have delivered low infla-tion and low interest rates, we need to modern-ize our economies to ensure that the European Union can sustain and develop its unique model of society.

The Lisbon Strategy provides the right response to meet these challenges.

• Foremost, it is Europe’s response for Eu-rope’s challenges. The Union does not wish to import the American model, nor to de-regulate to compete with China and India. The current pressures of competition should force us to see what is happening in the world and adjust to realities, notably by re-viewing and adapting our Social Model.

• The Lisbon Strategy quite rightly empha-sizes the need for growth and employment through greater competitiveness. Those el-ements are vital if the EU wishes to be a world leader and continue to progress.

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10

• The Lisbon Strategy offers intelligent solu-tions and innovative action that can lead to growth and job creation. The proposed syn-ergies (for example, between education and research, or between environment policies and innovative industries) and the central place given to knowledge, are the keys to our development. It should be underlined that China, Brazil and Russia are consider-ing strategies similar, in many points, to the Lisbon Strategy.

The Commission has set out a new, more focused approach to reforms in order to get things done.

In setting out at the beginning of February the contours of a revised Lisbon Strategy and by placing the priority on growth and jobs, the Commission was responding to past criticisms of Lisbon. This had been confirmed in the Re-port of the High Level Group3, chaired by the former Dutch Prime Minister, Wim Kok, which reported to the European Commission last No-vember. Criticisms ranged from the lack of delivery in the field, to the use of the so-called “Lisbon” method: there is a lack of commitment from Member States to implement agreed changes, it is too complex, there are too many goals, there is no clear sense of direction, there is too much emphasis on Brussels, the open method of co-ordination or benchmarking is inherently weak, etc...

However, making a realistic assessment does not mean being pessimistic: quite the contrary !

Europe has a long-established capability – 1992, the euro, the recent Constitution - to roll up its sleeves and do better. The renewed Lisbon Stra-tegy retains the main objectives and means of delivery not out of idealism, but because these goals are vital to preserve and develop a Euro-pean answer to the challenges facing the Un-ion.

The renewed Lisbon Strategy injects a new and stronger focus, aiming to deliver jobs and growth by:

• making Europe an attractive place to invest and work,

• placing knowledge and innovation at the heart of European growth, and

• shaping the policies that allow EU business-es to create more and better jobs.

A more attractive place to invest and work

If Europe is to prosper it needs to become a more attractive location for businesses of all sizes across the Union.

This approach recognises the value of the EU’s industrial base, as well as, the particular impor-tance of Europe’s small and medium-sized busi-nesses (SMEs). They represent 99% of our busi-nesses and two thirds of employment. There are simply too many obstacles to becoming an entrepreneur or starting a business. The Union cannot afford to miss these opportunities.

This is why we continue to stress actions to make the Internal Market work better, partic-ularly in the area of services and of financial markets. But responsibility lies primarily with Member States to apply the rules approved by the European Parliament and the Council. There must not be anymore “feet-dragging” in key areas of reform.

Another area will be actions to ensure a fair competitive environment and implementing the right approach for regulations at the national, as well as, at the European level. Competition rules will continue to be applied proactively, while in March the Commission will bring forward a new initiative on better regulations. One of the elements of this initiative will be to ensure that the Commission draws on external technical ex-pertise to help design impact assessments for specific proposals.

Finally, open markets at home must be matched by open and competitive markets abroad. Busi-nesses in the Union need to take full advantage of global markets. This requires the support of public authorities, both through the bilateral re-lations that the Commission negotiates on be-half of the Union, and, in particular, through the successful conclusion and implementation of


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3 Facing the challenge, Report from the High Level Group chaired by Wim Kok, 3 November 2004


the Doha Development Round, which includes a new package of global trade measures.

Knowledge and innovation

Europe has some of the best minds and the most innovative companies in the world. Eu-rope’s citizens only have to look at Airbus or listen to their mobile phones to feel this in their daily lives. Europeans can be proud of their in-dustrial base and of the many millions of inno-vative small and medium-sized businesses that are the backbone of our economy; small busi-nesses that nevertheless need the opportunity to grow.

Member States also need to increase their sup-port to EU schools and universities. They are an investment in the success of tomorrow, and a guarantee of a more inclusive, fairer society today.

The renewed Lisbon Strategy attempts to rein-force the Union’s knowledge base to boost fu-ture growth:

• Member States must speed up efforts to meet the 3% research spending target.

• As a result of future reform on state aid rules, Member States and regional and local actors should be able to use new ways of support-ing research and innovation, particularly by the EU’s SMEs. One idea, for instance, could be the creation of “Innovation Poles”, partly drawing on EU funding to bring together the Union’s best scientific and business minds.

• The EU universities should be a world ref-erence for high standards, but this requires better and more modern management within a European Area of Education. The renewed Strategy also proposes the setting up of a flagship “European Institute of Technology”. It can build on the Union’s strong track record in technology, but also attract good ideas and people from around the world.

• Also highlighted is the need to keep the Union at the cutting edge of science and

innovation from biotechnology and the in-formation society to promoting eco-innova-tion; a new generation of technologies that can help address the current challenges of society such as climate change, the search for alternative energy sources and energy ef-ficiency.

More and better jobs

Higher levels of employment are a key driver for sustained growth, but also a crucial element in improving cohesion throughout the Union. A job is the best weapon against poverty. By helping to create the conditions for higher rates of employment the renewed Lisbon Strategy is spreading prosperity and reducing the risks of social exclusion.

• For this reason, the renewed Lisbon Stra-tegy places emphasis on national reforms to modernise labour and social policies.

Such reforms are also the first step to ad-dressing the EU demographic challenges. The Commission will soon be launching a broad debate on the impact of an ageing population with a Green Paper. Similarly, a Green Paper on legal migration4 launched in January 2005 will help the Union develop long-term solutions to filling gaps, particu-larly skills gaps, in its labour markets.

• Bolstering employment means equipping

people throughout their lives with the skills they need to adapt to change and ensuring that the national tax and benefit systems help people to enter the workforce and of-fer the right incentives for them to remain there.

• But it is important to recognise that this is an

area where primary responsibility for change lies with Member State authorities and the social partners. This will be reflected in the approach of the new Social Agenda for the Union, which was just presented.

Of course, the social partners have a particu-

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4 Green Paper on an EU approach to managing economic migration, COM(2004) 811 final, 11.1.2005

lar role to play in taking Lisbon forward in this area. The Union’s tradition of social dialogue, backed up by appropriate action at the EU level, has been an important factor for economic and social progress.

The social partners are well-placed at the Euro-pean - but also at the national level - to help de-liver lasting growth and quality jobs. The Com-mission has invited them to lead by example in identifying concrete actions at their Tripar-tite Summit ahead of the March 2005 European Council. Why will Lisbon deliver this time around?

The key to success in this second phase of the Lisbon Strategy depends on people understand-ing the message of urgency and by presenting a more focused approach. Success will be criti-cally linked to ensuring real ownership of the Lisbon Strategy at a national, regional and local level. Lisbon’s objectives must become part of national political debate.

The Commission will, of course, play its role as guide and facilitator, contributing to develop-ments at the EU and national level. However, the renewed Lisbon Strategy also proposes to simplify Lisbon “governance” to make it clearer who is responsible for doing what and to make it easier for Heads of State, Governments and the European Parliament to provide strategic guidance on what needs to be done.

This is essential as nothing can be done un-less we have greater political will and a strong-er commitment from Member States, since so much of the Lisbon Strategy depends on action by them.

To help to build this ownership, the Commis-sion has proposed: • A more integrated approach to macro-eco-

nomic and employment policy co-ordina-tion within an integrated Lisbon cycle.

• A clear role for the Commission, European Council and Parliament.

• A Community Lisbon Action Programme to focus the work that is needed, to be complemented by National Lisbon Action Programmes. These should be developed

by Member States only after broad consul-tation of stakeholders and their Parliaments.

• Member States to identify a “Mr or Ms Lis-bon” at the government level to drive this process forward.

• Simpler reporting – in the future, there will be only one Lisbon report at the EU level and only one report at the national level.

Finally, we need to reach beyond governments; we need to convince the social partners, other institutions, national parliaments, and citizens. Their support needs to be secured for our goals of growth, job creation and reform. This means communicating regularly why Lisbon matters and how it makes a difference. This is a shared responsibility between all the EU and national institutions.

Ultimately, making a success of the Lisbon Strat-egy is crucial for the future of the Union, but also for our credibility.

José Manuel Durão Barroso is the President of the European Commission.



Germany is a country full of opportunities, but it must once again utilise them better. An economically strong Germany is also good

for Europe and for the implementation of the Lisbon Strategy, which is to be resurrected. Europe’s largest economy has to become again what it used to be in days gone by: an engine of growth for the entire continent.

Where does Germany stand today?

Germany’s economy is not growing enough. The economy grew by 114% in the first decade following the establishment of the Federal Re-public. The talk was of an economic miracle, and not without reason, even though this mira-cle had been achieved through people’s hard work. Another 54% of growth was achieved in the next decade. Growth was still around 23% in the eighties.

Actual growth in the German economy in the years between 1993 and 2003 came to 13.6% overall. In the same period, the other 14 EU states were able to demonstrate actual growth amounting to an average of 26.9% - almost twice that of the German results!

The CDU has some clear ideas about how our country can be guided to more growth, and hence to more employment and prosperity for its people. Just like the other successful econo-mies in Europe, we must tap into our potential.

Italy, for example, has managed to create over a million new jobs in the last three years; Fin-land takes first place in the PISA test; Ireland is recording economic growth of 5.2%; France provides a nursery school place for every child; Denmark has almost halved its unemployment; unemployment is below 5% in the Netherlands; and Sweden has the highest level of research investment in Europe.

Quite a lot has to change in Germany, to enable the country with its economic and social system to survive in the future, in the tougher interna-tional competitive environment, and to make it attractive for companies at home and abroad to invest and produce in Germany. Reforms are also required to enable Germany to tackle the most serious problem it’s currently facing: its ex-cessive level of unemployment.

Unemployment is the gravest source of in-justice in Germany

Unemployment in Germany passed the 5 million mark for the first time at the start of February 2005, and in the meantime it has actually risen to 5.2 million. To this figure we must add many more people who are undertaking retraining or further education, or who no longer register as unemployed, because they see no chance of finding a job.

A good 50% of the unemployed have been out of work for more than 12 months. In Germany only 18% of the unemployed find a new job within six months. Comparatively, in Denmark for example, 60% of the unemployed return to the labour market within six months.

In addition to serving the purpose of securing a person’s livelihood, work also makes a con-siderable contribution to that person’s sense of identity and self-worth. For that reason, the problem of unemployment is not an exclusively financial problem. For many people, produc-tive work and contact with other people, is a key part of their social life; unemployment, and particularly long-term unemployment, leads to a loss of satisfaction with life, to a drop in self-esteem and to a disheartening feeling of being excluded from society.

Nor, for that reason, can high unemployment be viewed as an exclusively fiscal problem. The much larger economic cost factor lies in the waste of many people’s capacity for work. A so-

Tapping Germany’s Potential for a Prosperous Europe

By Angela Merkel

Angela Merkel


ciety that permits unemployment to any signifi-cant extent is wasting knowledge and skills. The available potential for employment is, in part, allowed to lie fallow. Experts estimate the cost to the national economy of under-employment in the form of the loss of goods and services to be 15% of GDP.

The CDU expressly rejects the assumption that unemployment is the result of not enough work. From caring for people, through to envi-ronmental protection, there are plenty of exam-ples of work that is useful and desirable, but is not undertaken because there is no demand for workers at wages and levels of remuneration that exceed the market value of the work done. This, in fact, is one of the essential reasons for underemployment in Germany. The above as-sumption is also discredited by the fact that around 17% of Gross Domestic Product is cur-rently earned in the ‘shadow’ economy. As a result of this, € 370 billion bypass the fiscal au-thorities untaxed every year.

One further reason for this development is the extension of the welfare state with a system of social security payments, in which false stimuli and false guidance are inherent in the system. This has turned the welfare state into a competi-tor of private industry, acting in some cases as an alternative to employment. In some circum-stances, the wages offered in the employment market may not be an adequate incentive to work, when compared with the social security payments, particularly if these are supplement-ed by illicit work.

In the course of the expansion of the welfare state, numerous provisions for the protection of employees were established in law. Yet, as a re-sult of these regulations, companies will arrange for overtime hours to cover a rush of orders, rather than take on new employees. Thus, many regulations that were originally created for the protection of employees have now developed unwanted side effects, in that they frequently prevent more employment.

Germany needs a structural reform of its labour market, leading to a fundamental simplification and debureaucratisation of employment law and creating more flexibility in work schedules in order to facilitate the employment of new

staff. In this area too, we are prepared to learn from the positive experiences of some of our European neighbours.

Germany needs a new start to achieve pros-perity for all

People, once again, need hope and prospects. Only a clear course, coupled with decisive ac-tion, will restore confidence. For that reason we must remember the core aims of stable econom-ic policy:

• Rising personal income, growing employ-ment and stable national budgets require annual growth of at least 2.5 to 3%.

• Full employment must, again, be defined as a realistic objective. Germany can achieve this target just as other national economies can.

• The CDU stands for a stable currency and hence, adherence to the Maastricht criteria, because this represents the most important factor for safeguarding the purchasing pow-er of all citizens.

• The foreign trade balance is an important commodity, which can only be maintained in the long term if our national economy as a whole becomes more competitive.

The CDU orients its actions on the Christian view of the individual, which gives it an ethi-cal basis for responsible politics. We also place great importance on the basic values of liberty, solidarity and justice, as well as the principle of subsidiarity. Our view of humanity obliges us to adhere to the model of a society based on employment. If one is to take responsibility for the conduct of one's own life, one must be em-powered to do so, by means of an income from employment, which opens up the opportunity to do just that.

We are sure that with a joint effort we can re-turn our country to the elite group of the most successful nations in Europe within ten years. We will strengthen the forces of growth and so create significantly more employment once again. In this way, we will secure prosperity for everyone.

This all depends, however, on the rigorous im-plementation of some necessary reforms. Only

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then will we be able to continue to guaran-tee social security in the future. The profound changes to the economy and society that we are experiencing at the start of the 21st. century demand courage for change and renewal.

Firstly, we are rapidly developing into a knowl-edge-based society, demanding new solutions from politicians. The volume of knowledge available worldwide is growing explosively, and at the same time new knowledge is going out of date ever more quickly. The significance of knowledge as a competitive factor for compa-nies and national economies, and as a very per-sonal resource for the future of each individual, can by no means be underestimated. We must help to create the right conditions to ensure that everyone finds a place in society with his or her talents and abilities. Our success depends crucially on making sure that all talents – those of the craftsman, the scientist, the engineer, etc. – are called upon and encouraged.

The second major change is the fact that, in light of globalisation, Germany is today involved in an international competitive environment of an entirely new nature, from which our coun-try cannot disengage itself. As a country that is short of raw materials, Germany depends on its ability to assert itself in global trade by means of the development and marketing of state-of-the-art products and services. The only raw material that we have in good measure is the diligence and intelligence of our people. We must exploit this potential to the fullest.

Demographic trends represent a third signifi-cant change. Whereas the global population is growing, in Europe, and above all in Germany, a massive drop in population figures is antici-pated. This will have a considerable impact on the ability of the social security system to cope, on the number of people of working age and the structures of the employment market, as well as on the need for additional homes and care institutions for the elderly.

The many different changes in the world are forcing us to question and - where necessary – to rearrange the priorities of our political ac-tions. Our welfare state will only endure in the long term if we can overcome the problem of underemployment. Every recipient of state aid

who returns to employment becomes a taxpayer and social security contributor, thus contributing to the financial recovery of the community.

Ways must be found to reduce labour costs, so that employment growth can take off again. As long as we hold one of the top positions world-wide in terms of labour costs, we will continue to see a loss of jobs in our country. The hope of more employment can only be fulfilled if there is a clampdown on labour costs.

For this reason we need a social reform policy that distances itself from earnings-related contri-butions, and places the financing of social secu-rity systems on a new basis, such as the reform of the health service provided by the solidarity-based health premium model of the CDU and CSU. We need longer and more flexible work-ing hours, because this will also lead to a fall in labour costs. We need major tax reform, which will make tax rates simpler, lower and fairer. The success of Germany depends crucially on the replacement of the existing complicated tax system, with its excessive number of special ar-rangements and tax structure options, by tax laws that are based on simplicity and transpar-ency and provide incentives to work.

Germany is a highly developed country, which is particularly dependent on the development of new products. This will require a significantly greater effort to raise the level of education and training in our country. In order to be competi-tive internationally, our focus will have to be on sectors of the economy with high added value. Our future lies in innovation, research and de-velopment of new processes and better products and services that are relevant to customers.

We must push open the door to the knowledge-based society, because economic success will in future be even more dependent on high-quality research and good education and training sys-tems. We must do more than ever before, to ensure that key technologies are not just devel-oped in our country but, also converted here into profitable products. We must also see to it that we become flexible enough in our employ-ment structures that we can survive with the entirety of our potential in worldwide competi-tion.

Angela Merkel


Nothing threatens our prosperity and our social security more so than inertia and resignation. There is no alternative but to embark on sup-porting the modern, knowledge-based society. However, this support goes way beyond what is technologically feasible. We Christian Demo-crats place the individual at the centre of our politics. Our range of policies is directed at the strong, just as much as, at those who are too weak to help themselves. Solidarity remains a core element of our politics.

For this reason, economic and social policy are, for us, linked in an indissoluble combination. An economic policy without social justice will not achieve social peace and will undoubtedly lead to losses to the national economy. On the other hand, a social policy that does not take into account economic profitability, robs itself from its source of income. The social market economy combines economic performance and social responsibility to create an orderly politi-cal whole.

The social market economy has formed the core competence of the CDU for over 50 years. All the great social legislation in Germany has been developed and legislated in Parliament by the CDU. Thanks to the social market economy, our country has an impressive economic and social order. The CDU intends to reinvigorate this or-der under changed circumstances.

What used to be a common assumption: 'If the company is doing well, the workers are doing well too,' is frequently no longer valid today. People feel insecure. We are faced with a new social question: How can we succeed in secur-ing employment and welfare under globalised conditions?

We are convinced that solid answers can only be found if we succeed in permanently combin-ing market and humanity in a new Social Market Economy. Our vision is one of the ‘We’ society, which leaves no one behind and looks to the future together, with self-confidence and curi-osity.

We can win the future – we have options for action!

Germany must remember its strengths and ex-pand on them. In the competition for the most

modern products and processes and the most effective production methods, our country has indeed numerous options for action and pros-pects for success. The CDU is convinced that there can be positive developments for people in Germany, even in the age of globalisation.

Germany can win in global competition if it is prepared to subject outdated regulations on in-dustry, commerce and employment to inspec-tion. The telecommunications industry has in the past undergone an enormous structural change, and in doing so, it has made a significant contri-bution to the creation of new jobs. We have to recognise where our business structures are no longer relevant, under changed circumstances, and where new regulations are required.

In comparable European countries, it is possible to see that there are effective strategies to coun-ter unemployment. A report by the EU Commis-sion describes, for example, the labour market in Denmark as the “most flexible and effective in Europe”. Denmark underwent a comprehen-sive reform of the tools of labour market policy. Business taxes have been cut. This removed a burden from companies and set the economy in motion. Additional dynamism resulted from moderate wage settlements. They have made the creation of new jobs affordable once more. At the same time, protection against wrongful dismissal has been cut back and as a counter-move, they pushed up redundancy payments.

An added factor is that additional wage costs are comparatively low in Denmark, as the system of social security is financed to a greater degree, out of taxes. Furthermore, the rule that the un-employed must accept a job within one year, provided they are offered one, has proved to be particularly effective. Denmark managed to halve its unemployment rate from around 10% in 1993 to 5.6% in 2003. In Ireland, where they have comprehensively restructured the labour market in recent years, the unemployment rate fell from 15.4% in 1993 to just 4.6% in 2003.

Projections have shown that labour cost reduc-tions, wage restraints and longer working hours, would lead to significant successes in Germany, as well. The effect of this would be to largely eliminate unemployment in our country, with-out any resulting drop in the income of work-ers.


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Tapping Potential

Germany is standing at crossroads. The chal-lenge is to set a new course for the years ahead. At its party conference in Leipzig in 2003, the CDU passed plans for the future of the social security system and for the restructuring of in-come tax law in Germany. The party confer-ence in Düsseldorf in 2004 passed a plan for economic upturn and for more jobs. The CDU, thus, has a comprehensive programme that puts it in a position to succeed in taking over po-litical responsibility in the Federal Republic by 2006 at the latest.

Economic growth cannot be ordained by gov-ernment. But governments have the opportunity and the duty to act in those situations where growth is fettered and obstructed by outdated regulations, which were once useful to protect employees from arbitrary actions and exploita-tion, but which today impede new attitudes.

Politicians have the opportunity and the duty to put people in a position, by means of a good education and training, where they can each contribute their talents and abilities to this soci-ety, for the benefit of all.

Politicians have the opportunity and the duty to remove entirely any decrepit, bureaucratic regu-lations, or to replace them with flexible regula-tions.

Germany has every opportunity to survive in global competition, provided that the basic con-ditions are set correctly. Our programme shows the way to achieve this aim.

Angela Merkel is the President of the CDU of Germany.

Angela Merkel


In April 1999, British Prime Minister Tony Blair and I issued a joint declaration at Chequers on economic reform and employment. We

proposed that the future Portuguese Presidency should hold a meeting of heads of state and government to reformulate the European Un-ion’s economic strategy.

The Portuguese Prime Minister, António Gu-terres, received the idea favourably and began working on it with enthusiasm and intelligence. In March 2000, the European Council approved a broad programme of economic reforms in Europe, the “Lisbon Agenda”, about which so much has since been written.

The agenda was certainly ambitious in its aim: to make the European Union, over the first dec-ade of the twenty-first century, into the most competitive and dynamic economy in the world, capable of sustained growth, job creation and enhanced social cohesion.

It was a goal born out of a time of optimism. In March 2000, let us not forget, the general percep-tion of the potential of the European economy was favourable. We had successfully completed a process of nominal convergence, culminat-ing in May 1998 with the decision to launch the third phase of Economic and Monetary Union, and the introduction of the euro lay ahead. The problems of fiscal consolidation seemed to be a thing of the past; even the leading economic organisations predicted that Europe would be the area of greatest growth in the two following years, 2001 and 2002.

For many people, however, this climate of hope did not dissipate a serious concern with the underlying problems of the European econo-my—the problems that the initiative I had the honour to co-propose sought to address. During the 1990s, the US economy grew by over 3%

in every year but one; in contrast, in that same period the EU economy grew by less than 3% in every year but one.

Since the early 1980s, the process of rapid con-vergence that had begun in the post-war period had come to a halt. European GDP per capita was stuck at around 70% of the US figure. And in the second half of the 1990s this process ap-peared to have worsened: during the period from 1995 to 2001, the US accounted for 60% of total growth in the world economy, whereas the EU, with an economy of a roughly similar size, contributed barely 10%.

The US had been capable of achieving full em-ployment. Yet in Europe, millions were on the dole queues. For those of us who believed that the best social policy is employment, the ex-istence of millions of unemployed and, more worryingly, the apparently structural nature of unemployment, suggested that there was clear room for improvement to the so-called “Euro-pean social model”, for all its undeniably posi-tive features.

It was fundamentally important then, to capital-ise on that moment of optimism to propose a structural reform of the European economic sys-tem. Europe needed to ensure greater growth, without which it would quite simply be impos-sible to meet the high social and environmental demands of European citizens.

These, then, were the ambitions of Lisbon.

Time to take stock Five years have passed. We are now halfway through the decade, and as decided in 1999, the time has come to make a “halfway review” of the Lisbon agenda.

We must be honest with ourselves. Europe has been incapable of keeping up with the United States as a driving force in the world economy.

Europe’s Challenge for Growth: The Path to Follow

By José María Aznar

José María Aznar


Generally speaking, the European economy has gone through a period of great weakness. With millions on the dole queues, “social Europe” has feet of clay.

True, there have been certain notable excep-tions. Countries such as Ireland have given an example of how to achieve high growth rates and prosperity.

In seeking to explain the poor European results, one might resort to the excuse of adverse eco-nomic events. The financial crisis and the sharp rise in oil prices in 2000, 2003 and 2004; the accounting and financial scandals; the effects of the terrorists attack of September 11, 2001; and the definitive entry into the global economy of heavyweight competitors such as China and In-dia, to mention only the two most important.

But these economic incidents have not only af-fected the EU; indeed, many of them had a more direct impact on the American economy, which, nonetheless, has reacted with resilience.

Since 2000 the European Union has failed to achieve its forecast growth rate of 3%. It has scarcely managed to grow at over 1%, in con-trast to the much faster rate of the United States. What is even more worrying is that this differ-ential is forecast to remain unchanged in the years to come.

At this point, in undertaking a review of the Lis-bon agenda, we need to reflect on the reasons why the European economy has been growing at a slower rate for nearly twenty years, both during periods of expansion and moments of greatest weakness. And, naturally, we need to ask why Europe appears incapable of creating the same jobs as the American economy.

Some may consider it to be inevitable, as if it were somehow a natural phenomenon. Some may think that it doesn’t really matter whether Europe’s growth rate continues to lag behind America’s, not to mention China’s or India’s; that it’s not worth the effort required to approve the necessary reforms; that it’s not so serious if Europe continues to be less competitive be-cause of high taxes, rigid employment markets and the fragmentation of its national markets.

Worse still, there may be some who simply re-sign themselves to this situation; or even those who turn it into theory. Some may say that this behaviour is part of an alternative “European model”, in which economic dynamism is un-necessary, since our collective preferences are different.

Many of us do not agree. On the contrary, we believe that structural reforms are unavoid-able, however difficult they may be, and that we should not relinquish the pole position the European economy deserves. And the inescap-ability of reform derives precisely from the fact that without it the “European social model” will end up falling apart. It will be incapable of with-standing phenomena that are inevitably bound to happen, such as the retirement of the “baby boom” generations, putting extraordinary pres-sure on the pension and health systems. Pre-serving the social system, which has taken so much common effort to build requires sustained growth, full employment and reform.

I do not, however, agree with those who view Lisbon as a complete failure. This seems to me to be an excessively harsh judgement. In simple terms, we have made progress, but, not much and not enough.

I would like to cite just a few examples, starting from the text approved at the European Council in Barcelona in March 2002. The meeting set out a specific calendar of targets. Today, more than two years on:

• it has been agreed to completely open up the electricity and gas markets, which will bring direct benefits to consumers and com-panies. It is worth remembering that this would have been unthinkable at the time of the Lisbon Council;

• the essential part of the financial services ac-tion plan has been completed, which will make it possible to provide our common currency with an integrated financial mar-ket and increase competition; moreover, the Lamfalussy process is yielding good results, with notable reductions in the time taken to approve the necessary directives;

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• a new regulatory framework has been adopted for telecommunications;

• the “single sky” package has been com-pleted, allowing greater efficiency, capac-ity, transparency and safety in air travel and benefiting millions of users;

• progress has been made towards the lib-eralisation of rail transport, a step which is highly relevant for encouraging sustainable development.

It is true that it has been necessary to arrive at rather unambitious - or frankly unsatisfactory - compromises on certain specific issues. I too would have liked to take many of them much further. Yet it is not true that the process of re-forms has come to a complete halt.

What we do have to ask ourselves is why, de-spite these objective advances, the general pub-lic has been left with the impression that, as a whole, the Lisbon Strategy is not working.

The fact is that European citizens do not feel that the Lisbon Strategy has benefited them. This should be a central consideration in the review now beginning.

In my opinion, there are three fundamental rea-sons for this situation:

• First, from the outset, the central message of European strategy (which, it should be remembered, involved economic reform and employment) was diluted by being ex-tended to other issues; issues which were no doubt valuable, but which had nothing to do with that strategy. As a result, as the years go by, the term “Lisbon” has ended up being a cover-all, used on any occasion by all kinds of people. In the political debate - and we have all experienced this - the word is used in arguments both for and against.

This confusion has undoubtedly been capi-talised on - someone might even say caused - by those who are least in favour of the reforms. In my opinion, this is one of the fundamental reasons why it has been un-fairly discredited in the press and among the political class itself.

• The second reason is related to the method of decision. Lisbon saw the establishment of the “open coordination” method, an instru-ment which seemed promising for areas in which there are no clear community powers and where the classic community method was not applicable.

Five years down the line, experience has shown that this method has been useful in many regards, but its limitations have also become clear. Indeed, throughout this pe-riod, it is difficult to identify a single eco-nomic reform of any importance that has been adopted using “open coordination”.

On the contrary, I think it is significant that

the most important advances of Lisbon - some examples of which I have already cited - have all been based on the classic community approach, with both the Com-mission and the European Parliament in a position of political leadership.

This coincides with the experience of the 1980s. At that time, the reaction to what was termed “eurosclerosis” (a phenomenon which has sadly remained with us for more than twenty years) was the “single market” programme - essentially a raft of directives intended to achieve integration and open up national markets. The programme was un-questionably successful.

This does not mean that I am an uncondi-tional supporter of the legislative approach. I am well aware that on many occasions what is needed is not more regulation, but better regulation; on other occasions, what is needed is to deregulate, eliminating su-perfluous rules.

What I do believe, however, is that in areas in which the barriers are clearly identified, the legislative approach is a very powerful instrument for opening up markets, and we should not be afraid to use it. And I also de-fend the central role of the European Com-mission in initiating the reforms and ensur-ing that they are applied in their entirety.

• The third reason lies in political will. I know very well, from my own experience, that

José María Aznar


economic and social reforms have a political cost. Public interest requires us to undertake them, even if there is a political price to be paid. The lack of political will is decisive to understanding the limited progress made by the Lisbon agenda.

For me, the lack of priorities and the dilution of the initial purpose; an unsuitable method of governance, which has reduced the visibility of the achievements made; and a lack of political will are the three main reasons why the Lisbon agenda did not attain the scope it sought.

A framework of stability

The greatest success of this period has been the introduction of the euro. I would go so far as to say that the euro is perhaps the greatest ad-vance in the European Union’s 50-year history. And to use Schuman’s term, it is the greatest “concrete realization” of the European Union in the last two decades, alongside the enlargement to 25 members.

In my opinion, the euro constitutes a categorical success, inter alia because it founded a mon-etary union among 11 (and not 8) members, and above all, because this union has two solid foundations: the independence of the Europe-an Central Bank and the Stability and Growth Pact.

The slow growth rate of the European economy over the last twenty years is due to structural causes, not inappropriate macroeconomic poli-cies. There have always been those who defend monetary or fiscal expansion as a way of solv-ing lack of growth; they were around in 2000 and they are still around today. Now those same voices are defending the need to dispense with the Stability and Growth Pact, or at least to alter it in such a way as to make it meaningless. I do not agree; I think we need to consider seri-ously whether this is the right direction for the future of the monetary union and the European economy.

The European Union continues to have the highest rate of public spending as a percentage of GDP of all the major economic areas of the world. Furthermore, the aging of our popula-tion is more worrying than in other developed

areas (with the exception of Japan), while our generous public health and pensions systems offer unquestionably broad coverage. We are all aware of the pressures on spending that this will cause in the not too distant future.

In this context, I do not think that anyone can argue that it is wise to maintain a permanent deficit. Ultimately, all deficits have to be paid for, either through higher taxes, higher interest rates or by passing them on to future genera-tions. This is why I consider the central rule of the Stability Pact to be so sensible when it says that, except in conditions of grave economic re-cession, government budgets must be “close to balance or in surplus”.

There are many people who, while not ques-tioning this rule, think that the pact needs to be more flexible in applying it. This might seem reasonable, but it ignores the fact that the Pact, as it was initially approved, already contained broad elements of flexibility.

There are always features of any rule that can be improved upon (such as ensuring greater fiscal consolidation in the upper phases of the cycle), but I am afraid this is not the heart of the issue. We should not allow ourselves to be deceived as to the nature of this debate.

What is at stake is whether we want solid and credible fiscal rules for our monetary union, and, above all, whether we are prepared to as-sume the obligations these involve; or whether, on the contrary, Europe wants to play at “cheat-ing at solitaire” and moreover, to send out the message that European commitments and insti-tutions are not credible. For this reason, although it is not a particularly popular view at this time, I would like to state my defence of the current version of the Stabil-ity and Growth Pact. Despite all that has been written, nobody has come up with convincing reasons for believing that the current problems have arisen out of defects in the pact itself. Rath-er, they appear to have derived from the lack of a real will to implement it.

I therefore think it would be a mistake to relax its central features. Before doing so, we would have to be quite sure that we could provide a

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better alternative, one that is compatible with the treaty and that does not lower our present and future demands. Quite frankly, such an al-ternative does not exist at this moment in time. I, therefore, think we should reflect carefully be-fore taking any decision that might prove to be the wrong one, in a few years time.

Looking forward

Europe cannot resign itself. It cannot content itself with remaining as the area in the OECD with the lowest growth rates for another ten or fifteen years. Coupled with the disturbing de-mographic trends, this would place us in a po-sition of increasing irrelevance on the interna-tional stage, even if we continued to be a giant in terms of our economic size. This is not an agreeable panorama, but, unfortunately, if we do nothing to prevent it, it is a relatively likely prospect.

In my opinion, the two central arguments that led to the Lisbon agenda are still valid: the eco-nomic need and the political will. Five years lat-er, the debate on economic reforms in Europe needs a fresh impetus.

The President of the European Commission, José Manuel Durão Barroso, issued an excellent report on the second stage of the Lisbon agen-da. I feel that his experience and his capacity make him the right person to put forward this new impetus.

But in addition to the courage of his ideas, he has offered us a very relevant and clear-sighted analysis of everything that has been done since Lisbon, its strengths and its weaknesses, as well as its evident problems of governance.

Someone has criticised his proposals for having a certain ideological bias. I think this is deeply unfair.

Firstly, because his contribution arose out of a widely shared reflection, as the “Kok Report” - from which it takes its main features - shows.

Secondly, because the commitment to struc-tural reforms in the EU has always superseded conventional barriers. The promoters of the Lis-bon Strategy include representatives of all the

main political families in the European Parlia-ment; not out of ideological conviction or party opportunism, but as the only way of ensuring the sustained job creation the European Union needs. The experience of the spring Councils since 2000 are proof of this.

I believe the recommendations for the future contained in the Commission’s report are good ones. Indeed, there are three features that I think are particularly important and which might set the structure of the new working agenda for this second phase:

• Firstly, a large-scale raft of legislative reforms is needed. As I have already said, the legisla-tive approach is not always the best one, but in certain areas I think it is essential. Natu-rally, this will only be possible if there is the political will to undertake such reforms.

I would like to mention just a few of these.

1) The services sector accounts for 70% of a developed economy, but nonetheless there are still too many barriers to the single mar-ket in this area. Financial services, and in particular, the retail sector strike me as being a clear example.

2) We also need a new reinforcement of the policy on competition, and in particular a review of state aid. I am one of those peo-ple who think that the EU needs to have a strong industrial sector, but I do not believe public subsidies are the right way of achiev-ing this goal.

3) Labour reforms are quite simply essential. The rigidity of many labour markets is the chief obstacle to employment. Flexibility in this field inevitably results in more and bet-ter jobs.

4) I think a commitment to improving the qual-ity of educational systems at all levels is also essential. The value of hard work deserves to be extolled. Having long ago attained the target of universality, the priority of educa-tion must now be quality.

5) The reinforcement of policies on research and development is also essential. The com-mitment cannot and must not simply be to spend more. Above all, it must be to spend better; prioritising excellence, specialisation and reinforcement of the science/technol-

José María Aznar


ogy/business system.6) Encouraging innovation must be a priority.

The innovation deficit takes its toll in terms of productivity, competitiveness and em-ployment. Europe needs more innovation in its companies. Tax incentives can be a good way of achieving this, but they must be complemented by cultural changes in business.

7) In the same way, a balance must be struck between legitimate environmental and health demands and the demands of competitive-ness: proposals such as REACH should be assessed from this perspective.

A new set of laws would increase the im-pact and visibility of the reform process. Evi-dently, in this terrain, the leadership of the Commission and the European Parliament is irreplaceable.

• Secondly, we must find a better system for promoting reforms in areas in which the member states have exclusive powers. I think the idea of demanding a single an-nual “Lisbon action plan” from each member state is a very good one, cutting through as it does the current tangle of different kinds of “progress reports”.

Although these are exclusive national pow-ers, we all can and must offer our own opin-ions. Sometimes I think that we are not fully aware of the true meaning of the term “mat-ter of common concern” in the Treaty.

The Commission should also work intensive-ly to provide stimuli and recommendations in this field through these “Action Plans”. Each member state could decide whether or not to accept its recommendations (perhaps using the “Obey or Explain” method), and in all cases, it should involve its respective national parliament very closely in this dis-cussion. The result of this exercise would subsequently be subjected to a detailed peer review.

The OECD and the IMF carry out a regular in-depth examination of each economy. This is a good idea; and from my own experience I know the importance of this examination for formulating national economic policies. I think it would not be a bad idea if the

EU - and even more intensely the countries in the euro zone - were also to make an in-depth examination of each economy at certain intervals, in greater detail than the simple annual review contained in the an-nual reports. This idea might pose problems of different kinds, and will certainly require greater resources; but we have to be pre-pared to accept change if we really want to give a strong boost to reform.

• Finally, we should not forget that the EU is fully integrated into the global economy. EU-25 is the largest trading power in the world, and we also lead the way in flows of direct investment. We cannot have a strategy of internal economic reform without, at the same time, promoting an external opening-up. I am pleased to see that the Barroso re-port highlights this point.

European efforts in favour of the new Doha Development Agenda (which the EU was so involved in launching) will be of fun-damental importance. But it appears to me that these are, and must be, fully compatible with a particular strengthening of Trans-

Atlantic economic links.

Today, the Atlantic unites the world's two great economic powers. The United States and the EU are now the most developed and most technologically advanced eco-nomic areas in the world. The commercial and financial links between the EU and the United States are deeper and more intense than ever. However, barriers remain in the Trans-Atlantic economy, which result in lost opportunities for growth and employment on either side of the Atlantic. The remaining barriers are no longer the traditional ones, but rather obstacles of a regulatory nature. This is evident in areas such as financial services, competition, air travel and IT serv-ices. We must do something to tear down those barriers. It would not only be good for business on either side of the Atlantic, but also, and perhaps to an even greater extent, it would be good for developing countries.

For this reason I have proposed the creation of a Trans-Atlantic Economic Area, a Trans-Atlantic Area of Prosperity, which I believe would not only be compatible with multilat-eral order, but would be an essential com-

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plement for more open international trade.

Conclusion

Five years ago, in Lisbon, we reached what I have sometimes termed a “new consensus”: Economic dynamism and social cohesion are goals that can be attained simultaneously; they are not opposing concepts. To be sustainable, the “European model” requires reforms and economic growth.

We have made some progress over this peri-od. It would be unfair to argue otherwise. But we have also made mistakes: on occasions, we have not known how to focus on the right pri-orities and, essentially, there has been a lack of political will.

Now the time has come for a new impetus, which will bring together the best lessons we have learnt in this time, and correct our course, wherever necessary.

In his recent address to the European Parlia-ment, Commission President Barroso argued that Lisbon: “[...] must work, because it repre-sents the right diagnosis and the right cure, and there is no credible alternative”. These are ideas that many of us share, and they indicate that the process of economic reform is in good hands.

José María Aznar is former Prime Minister of Spain, President of Centrist Democrat International (CDI) and President of theFAES Foundation.

José María Aznar


Great strategists con-sider that the two key elements to win battles are fire power and mo-bility. This is true for any strategy, including

the one presented for the European Commis-sion to revitalise the so-called Lisbon Agenda, which should boost European GDP by at least 3% by 2010. The fire power of economic reform cannot do much without a healthy and efficient transport system that guarantees its mobility. In a way, the transport sector is the “carrier” of the Lisbon Strategy, but, at the same time, as an economic sector, it is important enough to generate growth and competitiveness.

Transport costs represent almost 10% of the European GDP and the sector employs more than 10 million people. It has proven to be the shop window of many of the most spectacular achievements of European industry, like the new Airbus 380, the biggest commercial airplane of the world. Advanced technology and big invest-ments that produce real economic benefits and create jobs are present in other big industrial projects like Galileo, that is also being promoted by the European Community.

Certainly, the transport system has its own prob-lems and the whole European economy suffers the consequences. Congestion costs are estimat-ed at more than 1% of GDP, CO2 pollution adds to the warming of the atmosphere, while road accidents take some 50,000 human lives every year in EU-25. Two major factors contribute to these problems: the imbalance between modes of transport and the persistence of a number of bottlenecks in the European transport network.

Solving the problems of the transport system is essential in any sound economic strategy, but, at the same time, investing in this sector will have

an important effect in technological develop-ment, in the creation of jobs and in the improve-ment of European competitiveness. Therefore, I consider that transport will play a paramount role in at least four main action areas of the Lisbon Strategy:

• Internal market, both in general, and in the transport sector,

• Infrastructure investment, particularly through the Trans-European Transport net-works (TEN-T),

• Industrial base (Galileo, Sesame, ERTMS) and

• External projection (Aviation International Agreements).

Completion of the internal market in the transport sector

Opening markets creates new opportunities for growth, investment and jobs and brings benefits to the consumers in tearms of greater choice and lower prices. This is certainly the experi-ence in the transport sector. Among the many factors that explain the strong growth and dom-inance of road freight transport and the high growth rates of air transport, is the fact that they opened their markets to competition earlier than the other modes of transport.

According to the 2001 White Paper on Euro-pean Transport Policy, rail transport is the sec-tor on which the success of the efforts to shift the modal balance depends; since rail, together with short sea shipping, offer a real alternative to road haulage. Nevertheless, the railway sector cannot compete on equal terms, fragmented as it is in 25 national markets and networks, while road transport and aviation enjoy the benefits of a single market and a single network.

We had to wait for the approval of the first

Mobility - a Key Element for Growth and Competitiveness

By Jacques Barrot

Jacques Barrot


“railway package” in 20011 to allow interna-tional railway services to operate freely within the trans-European networks between Member States. This measure has subsequently been reinforced by the “second railway package”2, which establishes the freedom of international operations in all networks from 2006 and, in ad-dition, the freedom to provide domestic services from 2007. The second package also took mea-sures in the crucial domain of safety, including the creation of an Agency, which is already op-erational from its base in Valenciennes.

Market opening in the railway sector will be culminated by the opening of international pas-senger services in 2010 according to a proposal from the Commission in its third railway pack-age. This package also included measures to ensure the quality of services in freight and pas-senger transport.

Now that the measures are there, they need to be implemented. The first railway package, for instance, has not yet been fully transposed by all Member States. In 2003, the Commission opened infringement procedures against eight Member States in order to push them to imple-ment this important piece of European rail leg-islation swiftly and thoroughly.

Since the Lisbon Council, a number of Member States have allowed open access to rail freight networks for domestic services to railway un-dertakings other than the national operator. A number of smaller competitors to the national rail freight operators have entered the market in these countries, with encouraging results.

Unfortunately, the other measures proposed by the Commission to achieve the completion of the internal market were not as successful as those concerning railways. For instance, the proposals concerning airport slot allocation, the sea port services directive, and the regulation for the award of public services did not achieve the results sought by the Commission.

The internal market also needs the different modes to operate on a level playing field and

therefore, there is a need for market opening in all transport sectors and services where the corresponding regulations should be duly en-forced. Air transport is a good example of this endeavour. After the opening of the aviation market, it was recognised that other support-ing services at airports providing air navigation services required a Community framework, in order for this to benefit the aviation sector as a whole.

In the case of air transport, the need to over-come the large fragmentation of European Air Traffic Management has led policy makers and economic operators to develop a real Single European Sky. The benefits expected are con-siderable. It is, for example, anticipated that a better organisation of air traffic can reduce kero-sene consumption by 6% to 12%. We have to praise the efforts of the many different actors involved in reaching such an agreement which, because of its military aspects, was of interest to national sovereignty.

The process of opening markets has not disre-garded the need to:

• maintain or even increase the quality of trans-port services, in terms of safety and punctual-ity,

• guarantee adequate social conditions for workers in this sector, and

• reinforce passenger rights.

In parallel to the opening of air transport mar-kets, the Commission sought to reinforce air pas-senger rights. On 17 February, a regulation that improves the compensation for the victims of overbooking, flight cancellations or unjustified delays came into force. In the communication that accompanies the regulation, the Commis-sion envisages to enlarge this approach to other transport modes, in particular to international coach and railway transport.

The White Paper set out to boost the quality in the road sector by improving working conditions and road safety through different measures con-cerning working time, driving and resting time, third country driver attestations and obligatory

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1 Directives 2001/12/EC on the development of the Community’s railway, 2001/13/EC on the licensing of railway undertaking, 2001/14/EC on the allocation of railway infrastructure capacity and the levying of charges for the use of

railway infrastructure and safety certification2 Directives 2004/49/EC on safety on the Community’s railways, 2004/50/EC amending Directives 96/48/EC and 2001/16/EC and regulation (EC) 881/2004 establishing a European Railway Agency

professional training.

Nevertheless, the competitiveness of the whole transport sector depends on high standards of safety and security and I am going to devote some time to these two aspects. For instance, concerning maritime safety, I will soon present the third “Erika” package. Furthermore, we are considering the possibility of reinforcing the tasks of the European Maritime Safety Agency (EMSA), in order to improve its control missions and to enforce European law on maritime safety and pollution prevention.

Concerning security, I think that a horizontal approach, to all transport modes, is paramount. I will soon present a communication on the sub-ject, and hope that the necessary measures will follow.

If different modes of transport have to operate on a level playing field, congestion and envi-ronmental costs have to be reflected in infra-structure charges. Consequently, the adoption of a new “Eurovignette” regulation is essential to improve the funding of the TEN-T and to pro-mote the modal shift from road to other more environmental friendly modes of transport.

Expand and improve European infrastruc-ture

We owe the creation of an EU transport infra-structure policy endowed with budgetary means to the European Parliament. While financing persistently remains the main problem that a large transport infrastructure has to overcome, very large strides have been made in the coordi-nation of infrastructure planning.

EU enlargement forced a revision of the Guide-lines, which were approved in 2004 and which, apart from integrating the main networks of the new Member States, identified 30 priority proj-ects due to cover the enlarged Union. The es-timated cost for the whole network was € 600 billion, while the priority projects had a cost of € 225 billion.

Despite the European Investments Bank (EIB) paying greater attention to the financing of priority projects, loans alone (reimbursable by definition) are not enough to make major in-

frastructure projects financially feasible. Public subsidies should make up for the large socio-economic benefits and deferred profitability of these projects. And when those benefits materi-alise at the European level (cross border transit, key bottlenecks, peripheral regions accessibil-ity, network effects) then European subsidies are needed.

This is the reason why the Commission has pro-posed increasing the budget available for the TENs to a level that it is in proportion with the Council and Parliament mandate to carry out the 30 priority projects. The Commission has proposed to raise the budget available for TENs up to € 20 billion for 2007-2013, i.e. four times more than the current budget, during which projects costing € 140 billion should be car-ried out. It also proposed to finance exceptional cross-border cases up to 50% with the TEN bud-get, whereas recently the maximum cofinancing rate was raised only up to 20%.

Therefore, in the decision on the next financial framework 2007-2013, it is essential to deter-mine if we are going to have a shy and limited investment policy on Trans-European Transport Networks or if we are going to use infrastruc-ture as the locomotive of European economic growth.

High Technology Projects launched by the Commission

Galileo

One of the growth-creating factors quoted in the Lisbon Strategy is the development and use of new information and communications technol-ogy. The Galileo satellite navigation project will put a new high level technology tool at the ser-vice of citizens and firms, and this will have a great impact on the efficiency of the transport system.

The success of Galileo may be used as a refer-ence in future industrial projects. At its initial stages, it was financed by EU funds for Research and Development, with participation from the European Space Agency (ESA). Article 171 of the Treaty was used for the first time to set up a Joint Common Undertaking financed by the European Union and the ESA to develop

Jacques Barrot


the project. Finally, it has been taken over by a Public-Private Partnership (PPP) scheme, in the form of a concession resulting from a com-petitive tendering procedure that will take the project to the operational stage. The European Union will gain an independent capacity in this field, breaking the monopoly of the American Global Positioning System (GPS), while the two systems will complement each other. The devel-opment prospects for goods and services con-nected with satellite radio-navigation are enor-mous, with markets growing by 25% each year.

SESAME

The success of Galileo demonstrates that Europe is able to mobilise our innovation potential for strategic technology. A similar initiative is fore-seen to improve Europe’s Air Traffic Manage-ment (ATM) infrastructure. It is expected that air traffic growth will continue to be strong for the foreseeable future. Institutional reform is under way as a result of the Single Sky initiative to improve the organisation of the sector, and pro-vides the opportunity to organise the introduc-tion of new technology, in particular “datalink” communication and satellite navigation, to en-able current air traffic management infrastruc-ture to deal with the new requirements.

SESAME is the basis for developing a new gen-eration of ATM network that will deliver greater safety, more punctuality and lower fuel con-sumption, which will help accommodate an ex-pected doubling of air traffic by 2020.

This will improve the competitiveness of air transport by reducing costs and releasing infra-structure to accommodate demand in a dynamic sector. It will also have important direct and in-direct effects as a result of the technology and innovation involved.

ERTMS

Another major industrial project is the European Railways Traffic Management System (ERTMS). The introduction of ERTMS as a management and safety system for rail traffic will enable trains to cross Europe using a single command and control system. ERTMS will improve safety by controlling the distance between trains and emergency braking, thus drastically reducing

the risk of collisions and allowing for a better management of rail paths.

ERTMS and the railway interoperability direc-tives will create a market of € 15 billion by 2010 and will permit the creation of a single market in railway equipment at the European level instead of a fragmented market, thus allowing a cost reduction of around 25-50 % compared with the most modern systems installed at present.

The rapid deployment of ERTMS, starting with the main traffic corridors, is a priority to which I attach a great importance. I will make support from the TEN-T budget line conditional on ERT-MS deployment. The prospects for its deploy-ment have been raised by the recent adoption of the related technical interoperability specifi-cation.

External projection

The internal market also has an external dimen-sion, the importance of which was underlined by a decision of the European Court of Justice on 5.11.2002 against eight Member States that had signed Open Sky agreements with the USA. The Court rulings confirmed that Member States may not discriminate between EU companies on the basis of national ownership. The success-ful conclusions of the ongoing negotiations with the USA and other third countries would open the way to a very much needed consolidation of the air industry.

The European Community is therefore renovat-ing and reinforcing its external policy in avia-tion. It is a great opportunity to enlarge to third countries the great success of the internal market and allow the whole air transport chain to profit from the advantages of a global air market.

The main tool of this long term policy will be the conclusion of ambitious agreements with our partners in the world. The first essential step is already underway with the negotiations with the United States, in which I hope to make strong progress.

But more agreements must follow. The first mandates granted to the Commission will allow the realisation of two important objectives: first the creation of a common air space with our

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neighbouring countries, and second, the con-clusion of global agreements with other regions of the world with special interest in the Euro-pean industry, in order to open the markets in the best competition conditions for all.

Galileo is also a programme where benefits can be improved with international coopera-tion. The European satellite navigation system will offer an unmatched global public service. Non-Member countries are well aware of this; more and more of them want to be associated with it. Certainly, the first objective is to make Galileo compatible with other navigation sys-tems, i.e. the American GPS and the Russian Glasnoss. However, the international potential of Galileo is not merely limited to technical har-monisation: it also involves the promotion of the system throughout the world, showing its efficiency, reliability and security. This process has already been actively initiated with several non-European countries.

Conclusion

Military historians consider that the genius of Napoleon Bonaparte lay in his skill to move troops in the battlefield. But in a certain battle, the advance of the infantry ended up in disaster because, the artillery failed to support their at-tack with fire. When the furious emperor asked the person in charge of the cannons why he did not shoot on his order, he answered: “For three reasons, Sire. First, because we don’t have am-munition.” Napoleon went away without listen-ing to the other two.

Mobility is at the centre of the Lisbon Strategy. Transport is present in the future fields of action that the Commission has just proposed, namely concerning the internal market extension and expanding the transport sub-sectors lagging be-hind, ensuring open and competitive markets both at home and abroad, expanding and im-proving the European TEN infrastructure, and contributing to a strong industrial base through projects like Galileo, SESAME or ERTMS.

However, this ambitious programme needs the necessary resources to reach its targets. The decision on the next financial framework 2007-2013 will determine if the Lisbon Strategy will end up in victory or in defeat. And it is impor-

tant that the Institutions responsible make the right decisions. Because if we fail, the European citizen, just like Napoleon, will not want to lis-ten to our excuses.

Jacques Barrot is Vice-President of the European Commission responsible for Transport.

Jacques Barrot


The mid-term review of the Lisbon Strategy issued in November 2004 by W. Kok has identified some areas of progress and sources of

satisfaction for the European Union. But it has, most of all, shown an urgent need to react to worrying results regarding growth and competi-tiveness. It is against this background that the Commission led by President Barroso has ap-proved on 2 February a communication to give a new impetus to the Lisbon Strategy.

In this paper, I wish to recall some features and objectives of the Lisbon Strategy, in order to bet-ter highlight what needs to be achieved by the Union. I shall then look at how the Lisbon Strat-egy relates to my portfolio i.e. to the two areas of fisheries and maritime affairs.

1. A new impetus for the Lisbon Strategy, Why and How?

Taking stock of the situation

The Lisbon Strategy aims at increasing the growth potential of the EU economy by un-dertaking profound structural reforms, which would turn the EU into “the most performing knowledge-based economy in the world”. It also aims at ensuring the sustainability of this growth. The Lisbon Strategy is undertaken in the overall framework of the European model of society and aims at ensuring the sustainability of this model at a moment when it faces many challenges, like, in particular, the ageing of its population.

The key reforms pursued by the Lisbon Strat-egy are related to building a knowledge-based economy, as well as stronger research and in-novation, the completion of the internal market, the modernisation of our social protection and an active employment policy aiming at higher employment and social inclusion.

As highlighted by the Kok report, the overall picture, after 5 years, is far from satisfactory. Al-though some progress has been made, it has been uneven. Overall:

• economic growth is still too low compared with other economic powers and it needs to be increased from an approximate average of 2% to 3% or more;

• employment rates (especially for females) are still too low and unemployment still too high in many member states;

• modernisation of social protection and em-ployment policy has started but much re-mains to be done;

• investments in research and ICT are still too low, compared with other economic pow-ers;

• the internal market is still far from comple-tion, especially as regards services.

Whilst painting this picture, it is worth recalling that benchmarking does not necessarily need to be made against third country economies (USA, China, Japan, Korea). Some member states are performing very well in many areas and are a valuable source of good practices to others. While reforms and experiences undertaken in some member states might not be transposable to others, they provide evidence that the Euro-pean model of society is compatible with high growth and competitiveness.

Lisbon Strategy, social cohesion and sustainable development

Above all, the key concern emerging from this picture is that Europe is facing a serious prob-lem of growth and employment that needs to be addressed urgently and profoundly, by mo-bilising all stakeholders. This is the most press-ing concern for our citizens. It is the common responsibility of Commission, Member States, Parliament and social partners, to implement the necessary reforms that will free our growth potential and pave the way for our employ-

Relaunching the Lisbon Strategy - a Contribution from Fisheries and Maritime Affairs?

By Joe Borg

Joe Borg


ment objectives. Creating this sense of urgency as regards growth and jobs, goes hand in hand with reasserting our attachment to the European model of society, with its social cohesion and environment pillars.

Indeed, we have to advance our model on its three pillars, i.e. economic, social and environ-mental. One of them, the economic one, is in bad shape: unless we concentrate our efforts on it, the whole construction will be stalled. By focusing on our growth and competitiveness problems, we are doing what is necessary to safeguard our social cohesion and our ability to protect the environment in the long term.

The question is, therefore, not one of choos-ing one of the pillars against the others, but to build the best possible policy mix at this point in time, to allow us to achieve our objectives in the long term. We believe that this policy mix should give more weight to competitiveness and growth concerns for the coming years.

In seeking to boost competitiveness and growth, we are also committed not to endanger the long term sustainability of our growth. This is particu-larly true in areas where economic activities are directly dependant on limited natural resources. This means that, among different environmen-tally and socially sustainable options, we should favour clearly those that are most conducive to competitiveness and avoid those which will put unnecessary burden on the competitiveness of enterprises.

One of the key challenges the EU is facing is to find the best ways of meeting the obligations of the Kyoto protocol. This strategic long-term goal will obviously remain a key perspective for many EU policies. In all these areas, policy options are considered that must allow us to meet our Kyoto objectives, like taxing pollution, developing and promoting clean energy tech-nologies, setting quantitative targets for member states regarding renewable energy, setting and promoting energy efficiency targets, and mar-ket-led mechanisms like tradable rights. Giving priority to competitiveness will require a well-thought mix of these different instruments in a way that favours those which are least costly to enterprises in the medium term, while allowing us to meet our long term Kyoto objectives.

As stated in the Kok report, “Well-thought en-vironmental policies provide opportunities for innovation, create new markets and increase competitiveness through greater efficiency…But this virtuous combination of environmental and enhanced competitiveness is not automatic; it requires the right choice of policy instruments… both in the short and long term.”

The Lisbon process, the Commission strategic ob-jectives and the financial perspectives

The discussions on the financial perspectives are of a crucial importance for the future of the Union. While the EU budget obviously pursues a wide range of objectives, the Commission is determined to mobilise all EU financial instru-ments at its disposal for the achievement of the Lisbon objectives.

In setting its strategic objectives for the in-coming mandate, the Commission has put them under four broad priorities: Prosperity, Solidarity, Security and the projection of the three former in the international dimension. It has also made it clear that the three priorities are mutually supportive and that many activi-ties and objectives falling, for example, under solidarity will contribute to prosperity, as well.

In particular, I wish to stress that structural funds, among other instruments, will directly contrib-ute to the Lisbon Strategy. As I will explain for the new European Fisheries Fund, they will be steered to also become key Lisbon instruments at the EU level.

This brings us to the relationship between my portfolio and the Lisbon Strategy: What contri-bution do Fisheries or Maritime Affairs at large bring to the Lisbon process?

2. Fisheries and the Lisbon Strategy

‘Fisheries’ is an area where environmental con-straints and obligations related to the conserva-tion of stocks are imposed on any policy de-cision. As a consequence, the conservation of stocks prevails upon any other concern since, without healthy fish stocks, there cannot be a healthy fishing economy. Against this back-ground, the Common Fisheries Policy (CFP) has

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developed along two main pillars:

• the conservation policy aiming at ensuring sustainability of fishing, and

• the structural policy aiming at supporting and accompanying the restructuring process needed to match fishing capacity with re-sources.

The December 2002 reform of the CFP has fo-cused on restoring sustainability of fishing, in a context of excessive fishing effort. It has opened the way for a renewed fisheries structural policy, aiming at better supporting the coastal commu-nities affected by the restructuring of the fishing sector as well as the reduction of the fishing effort.

Against that background, the question of the re-lationship between the Lisbon Strategy and the CFP can be addressed in two ways:

• How can we best ensure sustainability of fishing, while being in line with the priori-ties of the Lisbon Strategy?

• How do we ensure compatibility of the ob-jectives of the fisheries structural policy with those of the Lisbon Strategy?

Sustainability of fishing

Sustainability has an environmental and a so-cio-economic dimension. We wish to ensure long-term sustainability of fish stocks, as well as prosperity of fisheries and coastal communities. In our view, a well-managed fisheries policy should lead to both. Experience has shown that effective fisheries management, on the basis of good quality scientific data and advice, remains the primary tool to achieve stable and sustaina-ble fisheries. However, we also know that there are still certain weaknesses in our system. The 2002 reform recognised that simple annual adjustments to TACs and quotas are not suffi-cient if we are to achieve our objectives. It has laid down the three main principles that will un-derpin our work in the coming years to ensure sustainable fishing:

• To move progressively towards a multi- annual management of fish stocks;• To improve acceptance by stakeholders of

our policies, as well as, their involvement in the management of fisheries;

• To strengthen controls and enforcement.

We shall pursue vigorously the three preceding objectives.

But we are also seeking to reinforce competi-tiveness, within the constraint of keeping fish stocks healthy. This is done :

• by contributing to the adjustment of fleet capacity and stopping undue public aid to fleet renewal, which creates an environment more favourable both to sustainability and competitiveness;

• by liberalising carefully the trade of fish and fish products;

• by exploring carefully the new ways to man-age fisheries such as Individual Transferable Quotas that might allow the improvement of the management of stocks and increase competitiveness;

• Finally, despite the difficulty of the process, we are seeking to simplify the CFP legisla-tion, with the aim to make its implementa-tion by the stakeholders simpler and more effective.

Structural fishing policy

The current Financial Instrument for Fisher-ies Guidance is aimed mainly at guiding and facilitating restructuring of the fishing sector, which was affected by overcapacity. In addition to measures targeted at restructuring the fish-ing fleet, it already had measures relevant to the Lisbon Strategy:

• It provided support to develop alternative activities, such as, aquaculture, processing of fish and developing new market outlets for these products;

• It provided support to develop innovative more effective and selective fishing tech-niques;

• It provided socio-economic support to help re-train fishermen who were made redun-dant by the restructuring of their fleet.

The new European Fisheries Fund (EFF) is rein-forcing significantly this trend. Following the re-

Joe Borg


form of the Fisheries Policy in December 2002, which decided in particular to stop subsidising renewal of fishing vessels, emphasis is being put on a stronger and a more diverse economic base and, like for other structural funds, on sim-plification of delivery. The following develop-ments are relevant to the Lisbon Strategy:

• We have, through the EFF, introduced efforts to involve women in fisheries, aquaculture and processing and to create new diversifi-cation activities. This contributes to ensuring a higher participation rate in the labour mar-ket;

• EFF supports training of fishermen in cases of long term reductions of fishing effort. To this effect, Member States are asked to submit in their national strategic plans to support similar socio-economic measures. This is a contribution to active labour mar-ket policies and provides incentives for the acquisition of skills, knowledge and human capital;

• We are seeking higher levels of investment in fisheries research and development;

• The EFF also provides support to innovative fishing or aquaculture methods, and pro-motes sustainable uses of resources through more selective, more productive and less polluting methods;

• The EFF supports measures to find new markets and develop higher value-added fisheries products;

• Like other structural funds, we have under-taken with the new EFF regulation a signifi-cant simplification of the delivery mecha-nisms of the funds.

In conclusion, despite the constraint of limited fish resources and the overarching need to keep stocks healthy, we can follow policies that are conducive to growth and employment in fisher-ies and coastal communities. This is a clear in-dication that, by refocusing the Lisbon Strategy on the competitiveness priority for the years to come, this Commission is keeping track of its long-term sustainable development agenda.

3. Maritime Affairs and the Lisbon Strategy

In defining the new Fisheries and Maritime Af-fairs portfolio, the President-designate of the Commission, Mr Barroso, indicated that I would be responsible for managing the Union’s Com-mon Fisheries Policy, as well as for working with regions affected by changes in fishing patterns1. He asked me “to steer a new Maritime Policy Task Force. This will involve those Commission-ers whose activities are helping Europe and, in particular maritime communities to face up to current economic, social and environmental challenges. The aim would be to launch a wide consultation on a future maritime policy for the Union. ”

This was confirmed in the Commission’s five-year strategic priorities, which stated that:

“In view of the environmental and economi-cal value of the oceans and the seas, there is a particular need for an all-embracing mari-time policy aimed at developing a thriving maritime economy and the full potential of sea-based activity in an environmentally sus-tainable manner. Such a policy should be supported by excellence in marine scientific research, technology and innovation.”

In the following part, I wish to provide a back-ground for this new policy development and explain how it relates to the Lisbon Strategy.

Background for a maritime policy

The oceans and seas are of great economic im-portance, directly or indirectly sustaining mil-lions of jobs not only in marine industries such as transport, ports, fishing, and aquaculture, but also in the tourism and energy sectors. No less relevant are the many social, recreational, and cultural uses we make of our oceans and seas.

The following estimates of the value of the Eu-ropean marine resource give an idea of their wide contribution to our wealth:

• European maritime regions account for over

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1 This portfolio covers responsibility for the Law of the Sea and the Community Fisheries Control Agency.

40% of the EU (15) GNP.• Between 3 and 5% of Europe’s GNP is esti-

mated to be generated directly from marine based industries and services, the value add-ed by these activities being approximately €110 – 119 billion per annum. This figure does not include the value of raw materials (e.g. oil, gas, fish, etc).

• Coastal waters generate 75% of the ecosys-tem service benefits for Europe’s coastal zone – estimated to have a value equivalent to € 18 billion per annum.

• The monetary value of being able to accura-tely forecast sea conditions for safe routing of ships, to provide storm warnings, etc, is estimated by the insurance industry to be considerable.

In addition, the recent development of deep sea exploration has shown the considerable poten-tial value of non-living seabed resources (miner-als, gas hydrates), as well as of living resources in relation to biotechnologies.

The very scale of the oceans and seas has tradi-tionally led people to perceive them as an inex-haustible source of wealth. Human exploitation of the oceans has in general been limited only by the degree of technological development and by the resistance to human agency offered by the marine environment. Yet sustained and rapid improvements in technology and higher levels of coastal population have created new pressures on available resources, with a marked intensification of activities relating to fishing, transport, recreational navigation, and exploita-tion of oil and gas.

The current fragmentation of decision-making makes it difficult to reconcile competing uses and to define priorities for oceans, coastal areas and islands, resulting many times in the adop-tion of contradictory, parallel or short-sighted measures.

On the one hand, the intensive and rapid growth of coastal cities and economic activities may be contributing to the degradation of the marine environment. On the other hand, the growth of coastal tourism and of the aquaculture sector, the development of maritime transport, and the growing use of the energy, mineral and genetic resources of the seas provide new opportunities

for growth and job creation.

The competing uses of the seas must be man-aged carefully if their full economic potential is to be realised in a sustainable manner. This requires a thorough screening of all policies that may have an impact on oceans and seas.

The sustainable development of sea-based activ-ities, therefore, demands replacing a fragmented approach to oceans and seas management with a collaborative, integrated approach, involving among others, fisheries, environment, transport, energy, research and enterprise policies. This integrated approach is at the heart of the mari-time policy that needs to be built.

It is this integrated approach that will ensure that sea-based activities can deliver their full po-tential to the central Lisbon Strategy objective of sustainable economic growth and employment.

The Green Paper on Maritime Policy and its re-lationship with the Lisbon Strategy

A Task Force within the Commission is being set up to undertake the necessary work leading to the drafting of a Green Paper on an EU Maritime Policy and to launch a wide public debate on the subject. This Green Paper, to be adopted by the Commission in the first half of 2006, will constitute a first step towards an EU Maritime Policy, in line with the Commission’s strategic objectives.

The Task Force should build upon existing EU policies and initiatives. It should seek to identify the potential for beneficial interfaces and syner-gies between the sectoral policies, and how they could be made useful with a view to improving competitiveness, creating growth and boosting employment in a socially and environmentally sustainable manner.

The work of the Task Force should be broad in scope, should explore the value of a mari-time policy and the areas it should address, and should be based on a clear understanding of the value of the oceans and seas to Europe, their future potential, as well as, risks and challenges attached to them.

It would look at ways to further strengthen the

Joe Borg


European Marine Research Area, achieve Euro-pean leadership in marine science and technol-ogy and better integrate science with industry and policy making.

The work of the Task Force must also take inspiration from current best practices in rela-tion to the development and implementation of maritime policies. Options for good governance should be considered, as well as, sectoral and regional specificities. Consideration will also be given to the need for better regulation and sim-plification.

As a result, the Green Paper should identify the benefits which could result from an integrated Maritime Policy in the medium and long term in relation to economic growth and competitive-ness, as well as, employment, sustainability and security. It should also identify challenges aris-ing for the implementation of such a policy and propose options to tackle them.

Overall, the Green Paper should identify and assess the contribution of Europe’s maritime af-fairs to achieving the objectives set out by the European Council in Lisbon (but also in Gothen-burg and The Hague).

Joe Borg is a Member of the European Commis-sion responsible for Fisheries and Maritime Af-fairs.

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European citizens care about the environ-ment. A Eurobarometer survey conducted in November 20041 asked citizens to what extent

the state of the environment, economic factors and social issues influenced their quality of life: 72% replied that the environment did so “very much” or “quite a lot”. A slightly higher number, 78%, described economic factors in this way. It is not surprising then, that almost nine out of ten Europeans said policymakers should pay as much importance to environmental issues as to economic and social factors when taking deci-sions.

These results represent a clear mandate for the EU to continue to design policies aimed at protecting the environment and ensuring sus-tainable development. The improvements that can be achieved in this field - for example bet-ter air quality, cleaner seas and rivers, safer chemicals - are noticed and felt by everyone. Environmental policy is certainly an area where the value-added of EU action is very obvious: environmental problems do not respect borders. We should build on this and make a concerted effort to highlight and communicate what EU environmental policies have achieved so far and will continue to achieve.

Environmental protection and, in more general terms, sustainable development, remains at the heart of the Commission’s strategic five-year pro-gramme presented by President Barroso to the European Parliament at the end of January. The Strategic Objectives call for a new partnership for European renewal with the aim to restore dynamic growth and jobs, while respecting the environment. They emphasise that actions that promote competitiveness, growth and jobs can be mutually re-enforcing with social cohesion

and a healthy environment. This is embodied in the concept of sustainable development, which the Strategic Objectives confirm as the overarch-ing principle of all EU policies.

A strong environment policy can provide a cen-tral contribution to EU competitiveness and to the Lisbon agenda. The EU harbours an impor-tant potential for eco-innovation, increased eco-efficiency and the development of environmen-tal technologies. These are real strengths of the European economy on the global market place.

A growing number of business leaders and poli-cymakers recognise that environmental aware-ness makes business sense. But we still need to dispel many myths surrounding environment policy - that it is expensive, that it costs jobs, that it is a brake on competitiveness. We will also need to identify and clearly communicate the costs of inaction. My task in this Commis-sion is to ensure that environment protection remains a priority and a core element of the competitiveness and growth strategy of the EU.

Eco-innovation is an opportunity for in-creased global competitiveness

There are many concrete examples of the po-tential of environmental policies to increase our competitiveness. In the wind power industry, thanks to early support schemes in some Mem-ber States, European companies today domi-nate 90% of the global market, which is worth around € 8 billion a year and growing at a rate of 30%.

In 2003, the expanding world market for envi-ronmental goods and services was estimated at over € 500 billion. The European eco-industries sector has enjoyed a growth rate of around 5% per year since the mid-90s,2 which is an out-

Creating Growth and Jobs:a Role for Environment and Sustainable Development?

By Stavros Dimas

1 Eurobarometer 62.1: The attitudes of European citizens towards the environment, published in January 2004.2 Analysis of the EU Eco-Industries, their Employment and Export Potential, Ecotec, 2001

Stavros Dimas


standing result compared to the rest of the econ-omy. For example, in 2002 French eco-business achieved 6.2% turnover growth, and its exports increased by 10.4%.3 In Germany alone, 1.5 mil-lion jobs are linked to environmental protection. This represents more than the jobs in vehicle construction or the food industry.

I believe that, in particular, the EU’s leadership in fighting climate change will give us many opportunities to develop new climate-friendly technologies and exploit first-mover advantages as global demand for such technologies soars. Already now, booming developing countries, such as China, are looking for environmentally sound ways to meet their rapidly increasing de-mand for energy. As measures aimed at reducing emissions of greenhouse gases are introduced around the globe, climate friendly technologies will be in demand throughout the world.

Well-designed environmental policies can cre-ate the right framework for the development of such technologies. The Commission has al-ready responded to the focus on competitive-ness with some important practical measures. A step in the right direction is the EU Emissions Trading Scheme launched on 1 January 2005. By inducing companies to reduce their emissions, it will bring out the best skills of engineers and managers who have already started to look for energy efficiency increases and new clean tech-nologies.4

In January 2004, the Commission launched the Environmental Technologies Action Plan (ETAP), which seeks to overcome existing ob-stacles to the development and deployment of environmental technologies. The focus is on getting from research to markets, improving market conditions and acting globally. Progress in implementing ETAP has been satisfactory. For example, several technology platforms have been established bringing together the research and business communities, and EU research and

development programmes now give greater pri-ority to environmental technologies.

As a final example, last August, the Commission issued a handbook to encourage public authori-ties and public institutions, such as schools and hospitals, to “green” their procurement. With a budget of some € 1,500 billion per year, equiva-lent to 16% of EU GDP, public authorities have the power to introduce promising new technol-ogies and eco-friendly goods and services onto the market and bring the EU a major step closer to sustainable development.

Sustainability improves the overall perform-ance of companies

However, even if the Commission sets a good policy framework, it is only the European com-panies that can turn this into real profits. There is mounting evidence that good corporate en-vironmental management is linked to better financial performance and higher share prices. A study conducted by the independent ratings agency Oekem Research and the global invest-ment bank Morgan Stanley reveals that the share prices of companies with a good sustainability index outperformed the share prices of their en-vironmentally and socially less aware competi-tors by 17% between 2001 and 2004.5 A recent review of 60 European and North American studies undertaken over the last six years found that 85% of those studies identified a positive link between environmental governance and financial performance.6 50% of the businesses registering under the EU’s Environmental Man-agement Audit System (EMAS) get their invest-ment back and begin to turn a profit within twelve months of the initial registration.

This is increasingly recognised by business lead-ers. The World Business Council for Sustainable Development, a coalition of 170 international companies from 35 countries, confirms: “Pursu-

European View

Creating Growth and Jobs: a Role for Environment and Sustainable Development?

42

3 La conjoncture des éco-entreprises, Planistat pour le Ministère de l’Écologie et du Développement Durable, France, 20034 Analysis of the EU Eco-Industries, their Employment and Export Potential, Ecotec, 2001; Hintergrundpapier: Umweltschutz

und Beschäftigung, Umweltbundesamt, Deutschland, 20045 The performance of 207 companies that were rated “best in class” in terms of environmental and social criteria was com-

pared with the performance of 581 companies that received lower ratings. All companies are listed on the Morgan Stanley Capital International World Index. See http://www.oekom-research.com/ag/english/index_news-center.htm

6 Innovest Strategic Value Advisers study for the Environment Agency for England and Wales, 2004

ing a mission of sustainable development can make our firms more competitive, more resil-ient to shocks, nimbler in a fast-changing world, more unified in purpose, more likely to attract and hold customers and the best employees, and more at ease with regulators, banks, insur-ers, and financial markets.”7

EU environmental policy does not kill jobs

Yet, some still question whether we can af-ford our environmental policies in the current economic climate. I have often heard the claim that environmental protection in the EU costs too much and thus inhibits our economy. At the macro-economic level, this is not true. We know that the EU spends approximately the same on environmental protection as the US and Japan - around 2% of GDP.8

The tremendous costs of inaction

Of course, we should listen to the concerns of those that are affected by our policies. But we should also remember that there is actually a cost for inaction. Environment policy saves money by avoiding costs for society in the fu-ture.

The year 2004, for example, was the costliest year for natural catastrophes so far in insurance history, with global insured losses of over € 30 billion, according to the world’s largest reinsurer Munich Re. About half of the 650 natural ca-tastrophes recorded in 2004 were windstorms and severe weather events, which accounted for more than 90% of the year’s insured losses.9

With current global warming trends continuing, such costs will rise further, not to mention the human tragedies such disasters cause, unless preventive action is taken. Therefore, integrating the environment into our economic decisions is not something that we can postpone to a later

date. I find the following figures very telling:• Today, 7.2% of children across the EU-25

have asthma and 12.3% wheeze (an indica-tion of asthma), estimated to cost a total of roughly € 3 billion a year. The increase in these respiratory diseases is thought to be largely due to air pollution, in particular high levels of ozone and particulate matter.10

• According to the European Agency for Safety and Health at work, occupational skin dis-eases result in the loss of three million work-ing days each year, valued at € 600 million. These eczemas and other skin problems can often be directly related to chemicals.

• 7%-20% of cancers in France can be linked to environmental factors, including air, wa-ter and soil pollution, radiation exposure and noise pollution.11

There are physical limits to what human health and the environment can bear. We can choose to ignore them and pay the costs later - or take the steps necessary to integrate environmental thinking into our actions and design them in a way that they promote growth and employ-ment.

The link between Lisbon and the EU’s Sus-tainable Development Strategy

This year will not only see the mid-term review of the Lisbon Strategy. Also due later in the year is the review of the EU’s Sustainable Develop-ment Strategy, launched in Gothenburg in 2001 - one year after the Lisbon process12.

Anchored in the Treaty and in the Draft Con-stitution, the Sustainable Development Strategy represents the long-term vision for Europe and the guiding framework for all EU policies. The new approach to policy-making that it calls for, requires dealing with economic, social and en-vironmental policies in a balanced and mutually reinforcing way in order to enhance welfare both in the EU and globally. In operational terms, the

Stavros Dimas

43

7 The business case for sustainable development, World Business Council for Sustainable Development, 20028 OECD, Environment and Employment: an Assessment, Paris, France, 20049 Munich Re press release, 28 December 2004, at http://www.munichre.com/; Climate Change: Statistics, at http://www.muni-

chre.com/10 TNO: Evaluation of the cost of disease: assessing the burden to society of asthma in children in the EU, 200411 Rapport final de la commission d’orientation pour le plan national environnement santé, France, 200412 Gothenburg European Council, 15/16 June 2001, Presidency Conclusions


Strategy identifies six key unsustainable trends that pose a serious threat to our current and future well-being: climate change, threats to hu-man health, poverty and social exclusion, an ageing society, rapid transport growth and un-sustainable natural resource use.

How does Lisbon relate to the Sustainable De-velopment Strategy? This link has not yet been clearly articulated. I would hope that the mid-term review will do that.

In my view, Lisbon should be set within the wider context of sustainable development and also put into practice its principles for policy-making. This would help the EU make the right decisions on innovation, research, education and other issues that are relevant for its com-petitiveness. For example, with regard to cli-mate change, the Lisbon Strategy could trigger the launch of a major drive for greater energy efficiency and increased spending on R&D in climate-related technologies.

However, the Sustainable Development Strategy should not be just a vague statement of princi-ples, but contain firm and clear long-term com-mitments that are translated into intermediate objectives and targets. This set of commitments must include principles that will guide policy-making, such as integration and coherence (be-tween different policy sectors, between internal and external policies and between short-term and long-term goals), science-based policymak-ing and the precautionary principle.

Next steps

Over the next months, what will be happening?

The mid-term review of the Lisbon process is likely to take place in two stages. The Commis-sion has put forward its assessment for the Spring Council. It is thought that the Spring Council may then ask for an action plan or white paper setting new priorities for the implementation of the Lisbon goals.

The review of the Sustainable Development Strategy will also take place in two stages. The Commission is providing the Spring Council with a policy paper containing the main lessons drawn from an internal stocktaking exercise.

This stocktaking exercise shows mixed progress across the priority areas. While a substantial number of measures have been put in place since 2001, these efforts will take time to bear fruit, and the persistence of the unsustainable trends identified in 2001 calls for a strengthened sustainable development process.

In a second stage, guided by the orientations given by the Spring Council, the Commission will come up with a proposal for a revised Sus-tainable Development Strategy by the autumn of 2005, under the UK Presidency. I very much look forward to the Parliament’s contribution to both review processes.

Conclusion

The mid-term review of the Lisbon Strategy and the first review of the Sustainable Development Strategy will largely determine Europe’s key policy orientations for several years to come. It is clear that these reviews are taking place against a background of fear of loss of competi-tiveness, the rise of China and other emerging economies, and a focus on reducing administra-tive burdens. In this context, it is important to show that environmental protection and com-petitiveness are not in opposition, but that they can and indeed should be made mutually rein-forcing. This especially should be reflected in the revised Lisbon Strategy.

Europe’s citizens care about their income and job security, but they also want an open and caring society, and a healthy environment as a main contributor to their quality of life. They want prosperity, solidarity and security. The EU should therefore not aim for any kind of growth, but growth that contributes to increas-ing people’s overall quality of life - growth as a means rather than an end in itself.

The support of the European Parliament will be crucial to make this vision a reality. I therefore hope for constructive collaboration between our two institutions in the years to come.

Stavros Dimas is a Member of the European Commission responsible for Environmental poli-cies and priorities.

European View

Creating Growth and Jobs: a Role for Environment and Sustainable Development?

44

On 2 February this year the Commission adopted its Mid-term Review of the Lisbon Strategy enti-tled “Working Together for Growth and Jobs: a

new start for the Lisbon Strategy”. Introducing the Mid-Term Review to the European Parlia-ment on the same day, José Manuel Barroso, the President of the European Commission, said: “The simple truth from the last five years is that we have to get our economy moving, if more people are to find a job they want and if we hope to preserve and develop our unique model of society, that is our continent’s call-ing card.” Introducing the document to a wider public via the Commission’s Lisbon Strategy Website , the President stated: “Our clear aim is to have more and better jobs in a more dynam-ic, innovative and attractive Europe. With this strategy I believe we now have the right tools to achieve our goals.” These two statements sum up both the challenge facing Europe and what we must do to meet it.

The Commission’s assessment followed the re-port of the High Level Group led by Wim Kok. According to Kok, “The Lisbon Strategy is even more urgent today as the growth gap with North America and Asia has widened, while Europe must meet the combined challenges of low population growth and ageing. Time is running out and there can be no room for complacency. Better implementation is needed to make up for lost time”.

The Commission shared the view of the Kok Group that Lisbon is even more urgent today than 5 years ago. The reality is that the Strategy has been blown off course. This is not just as a result of difficult economic conditions since Lisbon was launched; it must be acknowledged that an overloaded policy agenda combined with a lack of coordination and conflicting pri-orities have also taken their toll. Most of all, however, there has been a failure to deliver and to implement.

The Commission therefore presented propos-als for a more focused, slimmed-down Lisbon, which would concentrate on delivering growth and jobs. This does not in any sense mean that the Union’s goals on the environment or with regard to maintaining its social model have been abandoned. Rather, it represents the re-alisation that neither those same environmental goals nor the social model can be achieved and retained without greater growth. In an ageing society, there are not many alternatives, apart from modernising social protection systems and making the labour market more flexible. Again, this is not a question of introducing a “hire and fire” approach to labour markets: Europe can-not compete on the basis of cheap labour. It is about ensuring that the labour force has the skills needed to assure employment, adaptabil-ity and high productivity.

This brings me to the specific topic I wish to address in this Article, namely the role of educa-tion and training in the Lisbon Strategy. In order to understand this, it is necessary to take a his-torical perspective and return to the origins of Lisbon. I shall return at the end to the question of the place of education and training in the re-vised Lisbon Strategy – the answer to the ques-tion is in fact rather straightforward. It is useful, though to remind ourselves of the precise goal which the Heads of Government set for the Eu-ropean Union in Lisbon in March 2000, namely: To become the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion.

They went on to identify some of the key con-tributions which education and training could make to attaining this goal, pointing out that people are Europe’s main asset and should be the focal point of the Union’s policies. Investing in people and developing an active and dynam-ic welfare state will be crucial both to Europe’s place in the knowledge economy and for ensur-ing that the emergence of this new economy does not compound the existing social problems of

Education and Training – Are We on Target for 2010?

By Ján Figel'

Ján Figel'


unemployment, social exclusion and poverty.

They also asked the Council of Education Min-isters to undertake a general reflection on the concrete future objectives of education systems, focusing on common concerns and priorities, while respecting national diversity.

Europe’s national – and indeed in many instanc-es sub-national – educational traditions are rich and diverse, and this diversity can be a source of cross-fertilisation and innovation. Many of our member countries have, in recent years, been engaged in national processes of re-ex-amination and reform of their systems, in order to take account of factors like greater diversity among the school population, the need to cater for intercultural awareness while transmitting shared civic and cultural values, the need to set education and training in a lifelong learning per-spective, catering for changing parental living and working patterns, or a growing recognition that education is an investment which yields far-reaching social returns as well as contributing to economic growth. The Lisbon objective has provided a powerful boost to reform within the European Union context.

The European Union’s Education Ministers have already been cooperating for more than a quar-ter of a century, developing programmes like Erasmus – which helped to make Europe a more tangible reality for individual citizens – and re-flecting together on issues of common interest, like how to improve the quality of education or deal with shared problems, such as school dropout and violence. Their cooperation has been increasingly close and covered a growing range of topics. But, their response to the Lis-bon mandate was a quantum leap, launching a process through which, for the first time, they set about systematically reviewing the purpose and functioning of their education and training systems, and clearly linked their cooperation to the wider issue of what education and training can contribute to the overarching strategy of the Union.

Education and Training 2010

In 2001, the Ministers for Education adopted a report on the future objectives of education and training systems1, agreeing for the first time on shared objectives to be achieved by 2010. A year later, the Education Council and the Com-mission endorsed a 10-year work programme2 to be implemented through the open method of coordination – a legally non-binding mecha-nism which safeguards national prerogatives while securing political commitment to meet agreed objectives by the most appropriate na-tional instruments.

Approved by the European Council, these texts constitute the new and coherent Commu-nity strategic framework of co-operation in the fields of education and training, a process now known as “Education and Training 2010”3. This integrates all actions in the fields of education and training at European level, including voca-tional education and training.

The Bologna process, initiated in 1999, deserves a specific mention here. Although closely con-nected with Education and Training 2010, it goes wider and now covers some 40 European countries. It aims to establish a common system for higher education degrees in Europe and is, thus, crucial in the development of the Euro-pean Higher Education Area, which the Com-mission is closely involved in.

The Ministers for Education agreed on three ma-jor goals to be achieved by 2010:

• to improve the quality and effectiveness of EU education and training systems;

• to ensure that they are accessible to all; and• to open up education and training to the

wider world.

To achieve these ambitious but realistic goals, they agreed on thirteen specific objectives cov-ering the various types and levels of education and training (formal, non-formal and informal) and aiming to make a reality of lifelong learn-ing.

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Education and Training - Are We on Target for 2010?

46

1 http://europa.eu.int/comm/education/policies/2010/doc/rep_fut_obj_en.pdf2 http://europa.eu.int/comm/education/policies/2010/doc/10_year_en.pdf3 http://europa.eu.int/comm/education/policies/2010/et_2010_en.html

Since then, technical working groups have been supporting Ministers’ work on the programme. Experts from 31 European countries, as well as, stakeholders and interested EU and international organisations support the implementation of the objectives for education and training systems at national level through exchanges of “good prac-tices”, study visits, peer reviews, etc.

Acting on the basis of proposals from the Com-mission, and using the Open Method of Coordi-nation, EU Ministers of Education in May 2003 adopted benchmarks (agreed targets at Euro-pean level) in five key areas4. These common targets reflect the seriousness of the intention to make European education a byword for quality. They concern the following areas:

• Basic skills – reading;• Early school leavers (drop-outs);• Completion of upper secondary education;• Graduates in maths, science and techno-

logy;• Lifelong learning participation;

Interim evaluation of progress

In Spring 2004 the Education Council and the Commission submitted to the European Council a joint report. This was an interim evaluation of the implementation of the “Education & Train-ing 2010” programme since Lisbon, which sent the message to Heads of Government and poli-cymakers that, overall, progress was too slow and that there were deficits in important areas such as limited participation in lifelong learn-ing. The following three priority areas should be acted upon simultaneously and without delay:

• Focus reform and investment on the key areas for the knowledge-based society

This involves a higher level of public sector investment in key areas for the knowledge society and, where appropriate, a higher level of private investment, particularly in higher education, adult education and con-

tinuing vocational training. Community fund-ing, including the structural funds and the education and training programmes, should have an increasing role to play in supporting the development of human capital.

• Make lifelong learning a concrete real-ity

There is a need for coherent and compre-hensive national lifelong learning strategies and to promote more effective partnerships between key actors including business, the social partners and education institutions at all levels. These strategies should include the validation of prior learning, and the creation of learning environments that are open, attractive and accessible to everyone, especially to disadvantaged groups.

• Establish a Europe of Education and Training

There is a need to develop a European framework, based on national frameworks, to stand as a common reference for the rec-ognition of qualifications and competences. The recognition of diplomas and certificates across Europe is essential to the develop-ment of a European labour market and of European citizenship. Member States should also take the appropriate measures to re-move obstacles to mobility and provide the necessary financial support, in the context of and beyond the Community programmes.

- This said, progress has been achieved at Community level in fields such as the adop-tion of the Erasmus Mundus and eLearning programmes and cooperation on Vocational Education and Training (the Copenhagen Process) and Higher Education (the Bologna Process). The inevitable conclusion, though, is that the pace of reform of education and training systems needs to be accelerated and the objectives of “Education and Training 2010” should be better taken into account in the formulation of national policies.

Ján Figel'

47

4 http://europa.eu.int/comm/education/policies/2010/doc/after-council-meeting_en.pdf


Is education and training on track to make the necessary contribution to achieving the Lisbon goal?

Fortunately, we do have a yardstick at hand, in the form of the agreed benchmarks I mentioned earlier and the Lisbon Council call for a substan-tial annual increase in per capita investment in human resources. Where are we today then?

Investment in human resources

Investment in education raises the productive capacity of the economy, with positive effects on productivity, labour-force participation rates, unemployment, as well as, on social cohesion. The Lisbon Council therefore called for a sub-stantial annual increase in per capita invest-ment in human resources.

Indicator 2000 20012010

benchmark

Public spending on education as a % of GDP

in EU 25

4.94 5.09

Substantial increase in per capita investment

Investment in education is a major expenditure item in public budgets. In 2001, 10.9% of public budgets in the EU were devoted to education, compared to 10.4% in 1997. Public spending on education and training as a share of GDP increased from 4.94% in 2000 to 5.09% in 2001, representing a total expenditure of about € 470 billion.

The real increase in education spending amount-ed to about 5%, or over € 20 billion, in 2001, which must be seen against the background of an increase in the number of pupils and stu-dents of 0.3% in the same period. It therefore can be concluded that in 2001 Europe was on track as regards substantially increasing per cap-ita investment in human resources.

However, since it always takes several years to compile education spending data on a national level, unfortunately only partial information is available on the trends after 2001. It seems that as a result of slower economic growth and tight public budgets the increase of public spending

on education slowed down markedly after 2001. Thus, while we started out on the right track, the effort may not have been sufficiently sus-tained in the most recent years.

There is also a big difference in relative spend-ing levels between Member States. The Nordic countries show the highest level of spending, especially Denmark and Sweden (over 7% of GDP), while spending is lower in Southern Eu-rope and in some of the new Member States.

While public spending in the EU, in terms of percentage of GDP, is on the same level as in the USA and higher than in Japan, there are ma-jor differences in private investment. Private spending on education institutions in Europe, which amounted to about € 55 billion in 2001, is less than one-third of the US level and only half the level of Japan. Also, the data available does not show an increase in private spending in the EU in recent years. Given public budget-ary constraints, private spending by both indi-viduals and firms, especially as regards higher education, needs to be stepped up in order to achieve the goals set in Lisbon.

PISA and low achievers in reading

Reading is one of the basic skills for participa-tion in the knowledge society, and good reading skills are also an essential foundation for learn-ing activities later in life. The Council therefore adopted the benchmark that by 2010 the per-centage of low achieving 15-year olds in read-ing literacy in the European Union should have decreased by at least 20% compared to the year 2000. This benchmark is based on data from the PISA survey (which the OECD organises every three years, the last having been carried out in 2003), namely the percentage of pupils with reading literacy proficiency level 1 or lower in the PISA reading literacy scale (students at level 1 are capable of completing only the simplest reading tasks developed for PISA; students be-low level 1 are unlikely to demonstrate success at even the most basic type of reading).

The results of the 2003 PISA survey show that Europe has not made any statistically significant progress since 2000 in achieving this bench-mark.

European View


48

Indicator 1

2000 20032010

benchmark

Percentage of low-

achieving 15-year-olds in reading

literacy in the EU

19.4 19.8

15.5(Decrease by at least 20% compared to

2000).

However, there have been individual successes: some countries that performed poorly in 2000 (for example Latvia, Poland) have reduced the percentage of low performers significantly in 2003. In the case of Poland this is seen to be a result of educational reforms which had not yet made an impact in 2000.

The best-performing country in reading in the world is an EU country: Finland. Many EU countries in recent years have been analysing what lessons they can draw from the good re-sults of Finland and the educational practices behind it.

While the EU countries participating in PISA did not make progress, on average, since the 2000 round, the USA and Japan show deteriorating results. In relative terms, the position of Europe thus improved. Reading skills, which are more closely dependent on family background, are more difficult and take longer to improve than mathematics and science literacy. In the latter fields, where educational reforms have a more immediate impact, there was a clear improve-ment in results for many EU countries and in the EU average since 2000.

Early school leavers and youth education attainment

Reducing the number of early school leavers is one of the foremost priorities to improve so-cial cohesion. Encouraging young people to participate in post-compulsory education is vital for their social and labour market integration. Unemployment rates for those with only lower secondary education, in EU25, were on average 3% higher than for those with upper secondary education. Those who leave school with low qualifications are in danger of being left behind in today’s increasingly competitive and compe-

tency-intensive society, where attainment of up-per secondary education has become something of a norm.

Indicator 2

2000 20042010

benchmark

Percentage of the

population aged 18-24 with at most lower secondary education and not currently in further education or training

17.2 15.9 10

The average rate of early school leaving has de-creased steadily in the past. There was an im-provement of over one percentage point in the period 2000 to 2004, bringing the latest figure for the EU to 15.9%. However, this is still nearly 6% higher than the benchmark of a rate of ear-ly school leavers of only 10%. Greater efforts are therefore, needed in order to achieve the benchmark in this area; progress has to be tri-pled to reach it. But the goal can be achieved, as the best-performing countries show. Nine EU Member States have rates of early school leavers below 10% and especially some of the new Member States show good results, with Po-land (5.7%) and Slovenia (4.2%) being the best performers in Europe.

The benchmark of 85% of young people attain-ing upper secondary education by 2010 is close-ly linked to the question of early school leavers. Unfortunately no progress has been achieved in the last few years as regards this indicator: 76.4% of young people in the EU had attained upper secondary education in 2004, the same level as in 2000. The Union has to do much better here in order to reach the benchmark. Again the new Member States show a good performance, with Slovakia and the Czech Republic showing at-tainment levels of over 90%.

Ján Figel'


Indicator 3

2000 20042010

benchmark

Percentage of young people

aged 20-24 old having attained at least upper secondary education

76.4 76.4 85

Graduates in mathematics, science and technology

Higher education is located at the crossroads of research, education and innovation, and an ad-equate supply of scientific specialists is of key importance for the development of the knowl-edge economy. Therefore the Council has set up the benchmark that the total number of grad-uates in mathematics, science and technology in the EU should increase by at least 15% by 2010 while at the same time the level of gender imbal-ance should decrease.

As regards this benchmark only data for the period 2000-2002 is currently available, but it seems that Europe is on track not only to reach the benchmark, but even to surpass it.

While the number of maths, science and tech-nology (MST) graduates has to increase by over 100,000 by 2010 compared to 2001 in order to achieve the benchmark, in 2002 alone it in-creased by nearly 25,000. The EU also seems to be making progress as regards the gender imbalance: the share of female graduates in-creased from 28% in 2000 to 31% in 2001, and it progressed further in 2002. However, as a result of the demographic development and fewer cohorts, the absolute number might grow less quickly in the future. In 2002 the EU had 705,000 MST graduates. This was three times as many as Japan and nearly twice the US figure. On the other hand, countries like China (590, 000 MST graduates in 2002) and India are catch-ing up fast.

Indicator 4

2000/2001 20022010

benchmark

Graduates in MST in the EU (in

1000)

2000: 650,0002001:

681,000

705,000 783,000

Growth since 2001

+15%

Lifelong learning participation

In a knowledge society, individuals must con-tinuously update and supplement their knowl-edge, competencies and skills for personal and professional development. The Council set the benchmark that by 2010 the European Union average level of lifelong learning participation should be at least 12.5% of the adult working-age population (age 25-64). The average level of participation in lifelong learning of the adult working-age population in the EU in 2004 was 9.4%, an increase of 1.5% over the 2000 result. This is the proportion of the adult population that has participated in formal, non-formal or informal learning activities within the four weeks preceding the survey. However, much of the increase was a result of a change of sur-vey methods, and the real increase was much lower. The participation rate must thus increase at a faster rate to meet the benchmark of at least 12.5% by 2010. In addition, the participation gap between those with high and those with low levels of prior education has widened. At present, those with a high prior education level are fourteen times more likely to participate in lifelong learning than those with a low prior education level.

Indicator 5

2000 20022010

benchmark

% of adults participating in lifelong learning

7.9 9.4 12.5

European View


50

Overview of achievement of education benchmarks

Since Lisbon, Europe has made good progress in some education fields, while more efforts are needed in others. Despite declining birth rates, the number of pupils is stable and the number of tertiary students is increasing by about half a million per year. Public investment in education grew significantly in the year after Lisbon and there has been clear progress in the number of MST graduates. As regards to the PISA study, European countries have on average improved their performance in mathematics and in sci-ence literacy much more than countries like the US and Japan. However, greater efforts are needed to achieve more progress in the field of low achievers in reading, early school leavers, upper secondary education attainment and life-long learning participation. Since the European Union includes some world leaders in these ar-eas, learning from each other can help to im-prove performance. The Commission is active in facilitating and enabling mutual learning in order to reach the common goals set at Euro-pean level.

New integrated lifelong learning program

In their joint report of 2004 to the Heads of Gov-ernment, the Council and Commission stressed the importance which they attach to the role of the next generation of education and training programmes. This referred in particular to the proposed new integrated lifelong learning pro-gramme which will take the place of the exist-ing Socrates and Leonardo da Vinci programmes from 2007 on.

The overall policy objective of the new integrat-ed programme is to contribute through lifelong learning to the development of the European Union as an advanced knowledge society. It aims to foster interchange, cooperation and mo-bility between the education and training sys-tems of the Union’s member countries so that they become a quality world reference.

The proposed programme responds in particu-lar to four factors:

• changes across the EU, whereby education and training systems are becoming increas-ingly integrated in a lifelong learning con-

text, in order to respond to the new chal-lenges of the knowledge society and demo-graphic change;

• the increasingly important role of education and training in creating a competitive and dynamic knowledge-based economy, and in facilitating adaptability to change;

• the need to build on the strengths of the cur-rent sectoral programmes design; and

• the need to simplify and rationalise Com-munity legislative instruments by creating an integrated framework within which a wide variety of activities can be supported.

It will consist of four sectoral programmes, each broadly corresponding to a life stage (Comen-ius for schools, Erasmus for higher education, Leonardo da Vinci for vocational training and Grundtvig for adult education) complemented by a programme on cross-cutting issues and a programme focusing on European integration (the ‘Jean Monnet programme’).

The new programme, together with the substan-tial increase of the budget volume which the Commission hopes will be agreed within the broader financial perspectives, will give the EU a powerful instrument in the field of education and training for the period 2007-2013.

The programme, which combines continuity with new activities, will focus on mobility, since it has been proved that this form of Community action has a clear positive impact on both indi-viduals and institutions involved. It is designed to be simpler to operate, and to deliver more flexibility. The new programme will thus help to contribute to the fulfilment of the three main goals for 2010: increasing the quality of educa-tion and training provided in Europe; improving access to education and training at all stages of life; and opening up education and training sys-tems to the wider world.

Conclusion

In short, the challenges are undoubtedly great. Member States are indeed moving to reform their systems, but the pace of change in society and the economy is so rapid that the effort to reform must not only be sustained but signifi-cantly accelerated. The Lisbon objective has undeniably produced an enormous impact in the world of education and training, both by setting clear, quantified

Ján Figel'


targets and by helping to cut the Gordian knot of a short-sighted fixation on preserving nation-al sovereignty at all costs. Europe is not a threat to national systems, on the contrary, it is a part of the solution.

For the educational reform movement to be sus-tained in all Member States, it is essential that it should remain an integral part of the Lisbon agenda. This is indeed what the Commission has proposed in its mid-term Review of the Lis-bon Strategy. It has done so because, on top of the benefits in terms of social cohesion, it recog-nises the indispensable contribution of efficient and effective education and training systems to any strategy which aims to increase growth and jobs. As is stated in the mid-term Review, an increase by one year in the average education level of the labour force can add as much as 0.3 to 0.5 percentage points to the annual EU GDP growth rate. The mid-term Review puts it succinctly:

“Structural change, greater labour market par-ticipation and productivity growth require a continued investment in a highly skilled and adaptable workforce. Economies endowed with a skilled labour force are better able to create and make an effective use of new tech-nologies. Educational attainment in Europe falls short of what might be required to ensure that skills are available in the labour market and that new knowledge is produced that is subsequent-ly diffused across the economy. The emphasis on lifelong learning and knowledge in econom-ic life also reflect the realisation that advancing educational attainment and skills makes an im-portant contribution to social cohesion.”

The mid-term Review also proposes a slimmed-down and more focussed action plan, consisting of ten main elements. One of these is “Investing more in human capital through better education and skills”. The action plan in this area consists essentially of the actions foreseen in the Educa-tion and Training 2010 work Programme, with the five agreed benchmarks, and further actions such as establishing a European Qualifications Framework and enabling European universities to compete in what is becoming a global mar-ket for knowledge. The approach, at Commu-nity level, to modernise education and training systems has, therefore, been laid out.

In conclusion, Education and Training remain central to the revised Lisbon Strategy and we must redouble our efforts and our commitment if we are to meet the targets we have set for ourselves.

Ján Figel' is a Member of the European Commis-sion responsible for Education, Training, Cul-ture and Multilingualism.

Endnote: further information on the new gener-ation of European Union programmes in educa-tion, training, culture, youth and the audiovisual sector is available on the Commission’s Europa website: http://europa.eu.int/comm/dgs/educa-tion_culture/newprog/index_en.html

European Council, Lisbon, 23-24 March 2000

The Union has today set itself a new stra-tegic goal for the next decade: to become the most competitive and dynamic knowl-edge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion. Achieving this goal requires an overall strategy aimed at:

− preparing the transition to a knowledge-based economy and society by better poli-cies for the information society and R&D, as well as by stepping up the process of structural reform for competitiveness and innovation and by completing the internal market;

− modernising the European social model, investing in people and combating social exclusion;

− sustaining the healthy economic outlook and favourable growth prospects by apply-ing an appropriate macro-economic policy mix.

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The Lisbon Strategy has recently been re-launched with a renewed focus on “Working Together for Growth and Jobs”. The

approach proposed by the current Commission is very much in line with the first priority of the Action Programme of the European Peo-ple’s Party (EPP) for the period 2004-2009. The emphasis is on a dynamic, competitive, solidar-ity-based and job-generating economy. This will also be the guiding principle of my mandate as European Commissioner for Information Society and Media.

ICTs are important …

To begin with, I want to underline the impor-tance of Information and Communication Tech-nology (ICT) to the relaunched Lisbon Strategy much more visible and widely understood.

• First, ICTs contribute to 40% of total produc-tivity growth, but they could give a much greater contribution if they were more widely adopted. For example, in the United States ICTs account for 60% of total produc-tivity growth.

• Second, although more than 70% of the EU population is covered by broadband only 7.5% are using it at the moment. This again provides an enormous opportunity for growth in the next few years.

• Third, as regards the next generation of ICTs, European investments in ICT represent about 20% of total R&D spending, as com-pared to 30% in the United States.

• Fourth, the EU ICT sector is important in its own right. It represents 8% of GDP and 6% per cent of employment and is one of the most productive sectors, growing annually at 9%1. But, empirical evidence suggests that Europe’s weaker performance in growth and jobs can be largely explained by the small weight of our ICT sector as compared to the US.

… and the best is yet to come.

The Information Society in Europe is poised to enter a new period of development. The time is ripe for a significant wave of growth based upon the growing availability of fixed and wire-less broadband services and the potential for fast growing digital services industries.

i2010: A European Information Society

In the coming weeks the Commission will adopt a new initiative i2010 (or European Information Society 2010) which will aim to make sure that Europe gets the full benefits of this new wave in terms of prosperity, jobs and growth. We must do this by giving Europe a single information space, stimulating investment in research, de-velopment and deployment in ICT and encour-aging the adoption of ICT and by building an inclusive vision of the European Information Society.

i2010 is built around three themes, all of which are consistent with the priorities of the EPP:

Information space. The EPP priorities call for a single market, especially in services. My target is to create a seamless information economy in Europe.

i2010 will target the creation of an internal mar-ket in information goods and services, such as content, games, interactive software and value

Towards the Knowledge-based Economy: Information Society

By Viviane Reding

1 European Commission calculations based on data collected by GGDC (Groningen Growth and Development Centre), presented in a Economic Paper from ECFIN (European Economy - European Commission Economic Paper Number 208, July 2004)

Viviane Reding


added services, and use the new regulatory framework for electronic communications to stimulate competition and encourage investment in Europe’s emerging digital services economy.

Innovation in Information and Communica-tion Technologies (ICT). The EPP prioritises research and innovation and places specific em-phasis on increasing the use of ICTs, in small and medium sized enterprises. My target is for Europe to consolidate and build up leadership positions in key informational products and services all along the innovation chain, from research to deployment and adoption. Today, Europe has leadership in some areas of ICT re-search and innovation. But, it is vulnerable to increased international competition. To stay on the next technological wave, Europe has to in-vest much more in ICT research and innovation than it currently does. It also has to lead the world in adopting ICT, especially at home, in small firms and in public services.

i2010 will look for increased commitment to in-vesting in European ICT, both in research and deployment. This means public-private partner-ships between the Commission, Member States and Industry to ensure that targets are met. A substantial increase in community spending is needed and will be sought. Proposals will also be made to increase the effectiveness of the in-creased ICT research spending through technol-ogy platforms, fiscal measures, property rights, etc.

Inclusion and better quality of life. The EPP emphasises that growth and competitiveness in a European context is founded on solidarity. My target is a European Information Society that leads the world in levels of accessibility. The European knowledge society should have the accompliments it needs to maintain European solidarity and to improve the general quality of life. Information society contributes on both sides of this equation. For example, new ICT solutions for “assisted living” can lengthen the time for which older people can live independ-ently, in their own homes, thus raising quality of life, while reducing a potentially very large call on social welfare and health care budgets.

The new i2010 initiative will come forward with a series of measures and stimulation policies to

ensure that this “win-win” proposition of ICT is utilized to the maximum benefit of Europe and its citizens.

The Lisbon Goals

When European leaders met in March 2000 to launch the Lisbon Strategy their aim was not only to develop the knowledge society, but to become the best in the world. The years since then have been disappointing in terms of progress; but, the Lisbon goals still remain within grasp and the Lisbon Strategy remains the centrepiece of Community policy, providing a framework for action on common objectives and for assessing “the state of the Union”.

It should be underlined that the past five years have seen some impressive achievements. Since 1999, six million jobs have been created in the EU 15, at a time of recession. There is now low-er long-term unemployment and more female participation in employment. Strategic network markets (telecommunication, energy and rail-way transport) are progressively being opened up. Internet penetration is high (nearly 100%) in schools, firms and public administrations. Near-ly half of all households are on-line.

But, as the recent Kok report “Facing the Chal-lenge” underlines, we are seriously undera-chieving on growth and innovation if we want to meet our appointment with destiny in 2010. Why is this? First, Europe has a complex and fragmented pattern of regulation, which is not at all business friendly; there is also the slow pace of structural reforms and the generally low investment in innovation, infrastructures and people. The internal market remains highly fragmented. Nearly ten years after the Single Market, the transposition of essential internal market directives is patchy, even those most rel-evant to the Lisbon Strategy. Kok has criticised the political will of the Member States to drive the Lisbon Strategy. In fact, it is the responsi-bility of all stakeholders to engage fully with the Lisbon Strategy; the Member States but, also the European Parliament, private enterprise and civil society.

This of course concerns me and I take this chal-lenge very seriously. In fact, as Commissioner for the Information Society and Media, I have a

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large responsibility for the growth of competi-tiveness and the growth of the knowledge so-ciety in Europe, which I will outline in the rest of this article.

ICT and growth

Information and Communication Technology (ICT) is a key component of the Lisbon Strategy. Its importance stems both from the contribution which it makes to overall economic perform-ance, and also from the benefits which it offers to society at large. The importance of ICT can be summarised, as follows:

• The ICT equipment and services sector is an important sector in itself. It has grown from 4% of EU GDP, in the early ‘90s, to around 8%. It accounted for 6% of employment in the EU in 2000. It is also one of the most productive sectors, with annual productivity growth of, on average, 9% over the period 1996-2000.2

• The ICT sector is the major source of new innovations that fuel future competitiveness. It is one of the most innovative sectors, ac-counting for 18% of overall EU expenditure in Research and Development (R&D)3, and as much as 30% of US R&D expenditure4. Furthermore, nearly all other fields of tech-nological innovation vitally depend on ICT. Nanotechnology and biotechnology would be unthinkable without ICTs.

• In general terms, ICT is the bedrock of the

modern economy. It is the single most im-portant source of productivity growth. It represented 40% of EU productivity growth and 60% of US productivity growth between 1995 and 20005. Economic gains from ICT stem directly from growth and innovation in markets for ICT goods and services and from the use of ICT in raising the performance

of businesses. Also, ICT increasingly forms an integral part of all industrial and service markets, either through the embedding of ICT components in goods (for example in consumer devices, automobiles, medical de-vices) or as part of the service offer (track-ing of parcel deliveries, e-banking). Empiri-cal evidence suggests that the productivity gap between Europe and the US is to a large extent explained by the former’s weaker in-vestment in ICTs.

• In addition, ICTs provide an improvement to people’s quality of life. ICT allows more and better services to be provided to larger num-bers of people. New information tools help to improve transparency and openness, as well as, government relations with citizens. ICT is also a powerful tool for preserving and promoting the European diversity and cultural heritage, by making content widely available.

Several EU countries stand out in adopting and making gains from innovations in ICT6. But the average European performance in realising the potential of ICT needs to be substantially im-proved. In a context where Europe is falling short of the Lisbon goals, it is essential that the opportunities of ICT are fully exploited7.

These messages are not new. Official reports on the Lisbon Strategy such as the EU competitive-ness report and, the EU economic review, un-derline the importance of ICT. Notably, more recently, the Kok report has called for a “com-prehensive and holistic” strategy on ICT8.

The Action Programme of the EPP for 2004-2009 itself states that “the ability to take the front lead in the field of new technologies will be cru-cial for Europe’s competitiveness in the com-ing years. The EPP will give strong emphasis to research in information and communication technologies as well as to the industrial exploi-tation thereof”9.

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2 European Commission calculations based on data collected by GGDC (Groningen Growth and Development Centre), presented in an Economic Paper from ECFIN (European Economy - European Commission Economic Paper Number 208, July 2004)

3 IDATE Comparaison de la recherche dans les TIC dans les grands pays industriels (Final Report 08.04.02)4 See “OECD Measuring the Information Economy 2002”; “OECD Information Technology Outlook” 20045 “The EU Economy: 2003 Review”, COM(2003)7296 There are routinely at least three European countries in the top five of the various attempts to rank global performance on

factors such e-readiness, information technology indices or digital access. See: for example WEF Global IT report; ITU digital access index.

7 “Report from the Commission to the Spring European Council. Delivering Lisbon. Reforms for an Enlarged Union”, COM (2004)298 W. Kok et al. (2004) Facing the Challenge: the Lisbon Strategy for growth and employment, Report of the High Level Group,

European Commission, Luxembourg9 European People’s Party “Action programme 2004-2009”, 4 February 2004, p.12


The Information Society at the core of Lis-bon

The extensive contribution of ICT to growth and jobs is very clear if we look at the wide range of policy areas in which ICT can and will make a contribution to the objectives which Wim Kok and his colleagues identified in their recent re-port (see Table 1).

Kok explicitly identified the Information Society Policy as crucial to the realisation of the Know-

ledge Society. In this case, he cites the regula-tory framework for electronic communications, stimulation measures to encourage the adoption of ICT, creating a favourable environment for e-business and the need to maintain European leadership in mobile communications.

Indeed, ICT remains the key driver of growth and innovation in the world economy. No oth-er technology has ever delivered the sustained productivity gains that we have seen with mi-croprocessors over the past 40 years. No other

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TABLE 1 - BROAD OBJECTIVES IDENTIFIED IN FACING THE CHALLENGE

Key policy area Sampling of “Broad objectives”

Realising the Knowledge Society

Information Society: defining a regulatory framework for electronic communications; encouraging the spread of ICTs; creating conditions for e-commerce; supporting European leadership in mobile communications technologies

Research: Setting up of an area of research and innovation; boosting spending on R&D to 3% of GDP; making Europe more attractive for its best brains; promoting new technologies

Education and human capital: halving the number of early school leavers; adapting education and training systems for the knowledge society; fostering lifelong learning for all; promoting and facilitating mobility

Keeping our commitments to the

internal market

Removing obstacles to the free movement of services in the EU

Completing the internal market for network industries

Ensuring fair and uniform application of competition and state aid rules; reducing state aid to 1% of GDP; defining the new mergers regime and take-over bid rules; updating public procurement rules

Creating the right climate for entrepreneurs

Lowering costs on doing business and removing red-tape: developing a better regulation strategy at both European and national level, reducing time and costs for setting up a company

Building an adaptable labour

market for stronger social cohesion

Improving productivity, lifelong learning, new technologies and the flexible organisation of work; adapting the European social model to the transformation to the knowledge economy and society: facilitating social security in cross-border movement of citizens; meeting target of 12% of primary energy needs and 21% of gross electricity consumption from renewable energy sources

Working towards an environmentally sustainable future

Decoupling economic growth from resource use: tackle rising volumes of traffic, congestion, develop a Community Framework for pricing of transport infrastructure, ensure a sustainable use of natural resources and level of waste

technology was ever rolled out as quickly or as pervasively as GSM or the Internet. And, yet, most business gurus say that we are only now about to see the real benefits of the rollout of these technologies in terms of growth and competitiveness. The European ICT sector has strengths such as communications, embedded systems and applications. Too often important research results are made in Europe but, are only recognised elsewhere. The World Wide Web is just one recent and obvious example! We have to make sure that we ride these new waves of development, because they are the motors of growth and job creation.

Information Society policy has a significant im-pact on other areas, as well. As is illustrated in Table 1, ICT provides an essential underpin-ning element to a wide range of other actions to modernise the European economy. As we have seen, ICT represents a very large share of total research expenditure. And given the very short lifecycles of ICT generations, it is one of the areas of research where spending can most quickly feed through into economic results. In education and the development of human capi-tal, ICT is one of the main drivers of modernisa-tion across all learning environments. ICT pro-vides ways to adapt learning to the wide variety of needs of different educators and learners. It is also an important new market area in its own right, expected to exceed US$20billion globally by 2008, with compound annual growth rates in Europe, MiddleEast and Africa of up to 30%.10

The construction of the internal market was not launched for its own sake or because of po-litical ambition, but because it made economic sense. Creating economies of scale and more transparent and less complicated conditions for businesses is especially important in the poten-tially fast growing areas of e-business and infor-mation services. The Lisbon Strategy is moving Europe towards a future knowledge economy in which electronic communications, software, on-line services, digital content and audio-visual will play an ever increasing role. We have to act now to make sure these industries can grow vig-orously in Europe. Europe needs to be a lead-ing market for these new industries. Advances

are already being made in other nations. This calls for an immediate, concerted and ambitious approach to the framework conditions for the economy of the future such as IPR, electronic payments, digital privacy and network security.

Cutting business free of red-tape is identified in the Kok Report as a key objective. This does not mean we don’t need rules. It means that we need 21st century public administration based on fast and transparent on-line services. For instance, it should be possible to set up a new firm in 6 hours or 6 days instead of the 6 weeks or 6 months sometimes needed today. Moreover, a more efficient public sector could also reduce tax burdens whilst aiding the sus-tainability of European social systems. This is a move in the right direction and there is no fun-damental reason why it cannot give fast results. As an example, a new survey on online income tax declarations shows that they currently save 7 million hours per year, for citizens who use them. This could rise to more than 100 million hours each year. For businesses, online VAT declarations save about 10 hours per declara-tion. If maximum utilization were achieved, this could translate into savings of some € 0.5 billion for businesses across the EU each year.

We need to work on making the European in-novation system more dynamic and to use our instruments more effectively. It is, of course, essential to support creative and leading edge science and technology, as we do in the IST research programme. But it is not enough. As the EPP Action Programme points out, we have to look at the conditions for the effective indus-trial exploitation of these new innovations, es-pecially amongst SMEs. And we should consider the potential for government to lead the way in putting services on-line as the driver of modern-ising the public sector and by using government spending as a force for innovation and growth through smart procurement.

Information Society policies are also essential to reinforcing the adaptability of labour markets and enhancing environmental sustainability. Information networks and services are critical

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10 Source: IDC, Worldwide and US Corporate e-learning 2004-2008 Forecast: Behind the Scenes with e-learning, a Business enabler, page 13.


infrastructures for a freer movement of citizens across borders to live and work, without los-ing their position in the social safety net. Mean-while, “decoupling economic growth from re-source use” is simply unthinkable without new advances in energy management systems, mate-rial resource control, logistics and recovery/re-cycling techniques. In addition, the substitution of traditional mechanical components by elec-tronic systems has reduced weight and mate-rial use, resulting in more reliable, cheaper and cleaner products.

ICT – the yeast in the mix

The Information Society portfolio, therefore, is not just another sectoral interest that bears on competitiveness, but is the one that lies at the heart of growth and innovation needed to de-liver the Lisbon Strategy.

Information Society may not have the gravitas of macro-economic policy or the established posi-tion of employment and labour market policy; but if you want to make bread you need more than just flour and water - you also need yeast. Information Society is exactly like yeast; it is the active ingredient without which the economy will not rise.

Moreover, it is an area which communicates re-sults. It is an area in which citizens and busi-ness can chart the progress in the form of new products and better services. It, therefore, plays an important part in keeping Lisbon visible and on track.

Policy priorities for the Information Society and the Lisbon Strategy

As we have seen, ICT is the “enabling technol-ogy” par excellence. It is responsible for around half of productivity growth in modern econo-mies. It drives improved efficiency and better services and products across the entirety of the private and the public sectors.

Also, the ICT revolution is not over. We are right now seeing a very important consolidation of the use of ICT that will drive productivity gains and new markets over the coming years. It is true that the Internet launch phase is over.

About 50% of EU households are connected to the Internet. Almost 100% of schools, compa-nies, and public administrations are on-line. But the game is not over. A new, and possibly much more important phase is underway. The next wave driving new markets is broadband, both fixed and wireless and the convergence of the services based on these new broadband infra-structures. Broadband services cover about 80% of the territory of the EU15 but, only around 8% of the population are subscribers. Subscription is increasing at 75% per year. This is fast, but it is well behind our international competitors. New bandwidth hungry content and services are coming on the market for both consumers (e.g. music and games) and business (e.g. mo-bile data services). The EU should aim to be-come a lead market for these new services. But the EU so far lags behind; for example the ICT contribution to growth in Europe is half of what it is in the United States.

My new i2010: the European Information Society initiative, planned for adoption by the Commission in May 2005, will stimulate more and better use of ICT. It will, therefore, make an important contribution to the Lisbon Strategy, with a strong potential to contribute to growth and jobs through innovation and investment in the knowledge economy - an economy we have to build if we want to maintain European stand-ards of life and sustainable development.

Information Space

First, information space will enhance the condi-tions for the development of important and high growth markets for content and services. It will continue to support the developments in areas such as e-government, e-health, e-learning and e-inclusion. These services are important in their own right because they improve the quality and transparency of services that citizens receive, and because they can allow the public sector to do more with the same level of resources. They are also important growth markets that are help-ing to modernise Europe. The new instrument will certainly also encourage the acquisition of e-skills and the wider use of e-learning, which is essential to achieving the knowledge society in Europe. We will also have to look at promoting the right conditions for wider use of ICT in the economy; for example, the need for interoper-

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ability, trust and dependability, and appropriate business uses of ICTs.

Second, I believe that we have to build com-petitiveness through competition. Competition is opening up in the electronic communications sector leading to greater services (including on-line) and to reduction of prices. Even still, five countries have not transposed the regulatory framework on e-communications. We have to continue to be vigorous in our efforts to open up this market, because it is a key enabler of growth. By the same token, I agree with the EPP in the need to promote the move towards mo-bile broadband, especially by increasing com-petition, predictability and clarity, as regards to issues such as spectrum allocation and trad-ing. These orientations will guide my approach since, in the next two years, I will review two of the main Directives for which I am responsible; the “Television without Frontiers Directive” and the “Regulatory Framework for the Electronic Communications Sector”.

The same principles of transparency and com-petition can be applied to other information services markets that have high growth poten-tial, but which are held back by the uncertainty, fragmentation and complexity of rules on pay-ments, copyright, privacy and security across Europe. Here again, i2010 is in line with the EPP Action Programme. We need a much improved regulatory environment for doing business in Europe, not just for the old economy but, for the new economy as well!

Innovation in Information and Communica-tion Technologies (ICTs)

Third, we need to redouble our research efforts to stay on the wave of new innovations. ICT is one of the research areas where the EU still has leadership (microchips, mobile, consumer elec-tronics) but we are “on the edge”. Competition now is not just from the US, Japan and Korea, but from India and China. New ‘value domains’ that could be worth around € 500 billion per an-num are emerging, at least four or five of them

in the ICT domain. For example, consumer elec-tronics and computing have started to converge very rapidly, creating many opportunities for new products and services. Such sectors can grow 10% - 30% per annum. If we miss these innovation waves at the research and deploy-ment phases, the EU could be sidelined from some of the main motors for economic growth in the coming decade. It is clear that ICT is a crucial motor for growth and yet Europe is fall-ing behind in terms of investment. Community support for research in the ICT field has been steadily increasing over the years, but as a pro-portion it is declining (as the FP become more complex).

If we are serious about the Lisbon Strategy and about our commitment to growth and jobs, we should have the courage to increase R&D spending substantially. Changes are needed in the Community research programme, to cut red-tape so as to encourage more SMEs and corporate involvement. Also, in my view, the new Framework Programme 7 that we are now preparing, has to be accountable and transpar-ent; but research is about taking risks and more bureaucracy will not eliminate risk it will merely hide it. Furthermore, it should be more targeted. Two recent independent reports on the FP both stress the need to make Community research more strategic and more attractive to industry11. We need a research programme for ICT that is targeted and strategic, industrially relevant and which is substantially increased in size.

Inclusion and better quality of life

The third pillar of i2010 aims to exploit the po-tential of ICT in increasing the welfare of Euro-pean citizens. i2010 will aim at building a Euro-pean knowledge society that uses its prosperity to reinforce solidarity, raise the quality of public services and improve the quality of life. “i2010: A European Information Society” provides a vi-sion of suitable and affordable access to essen-tial ICT facilities, as well as the necessary skills and value-added services and contents. This will contribute to further empower users, improving

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11 José Mariano Gago (2005) Five-Year Assessment: 1999-2003, Research and Technology Development in Information Society Technologies, Final Panel Report, January 2005, http://europa.eu.int/comm/dgs/information_society /evaluation/pdf/5_y_a/ist_5ya_final_140105.pdf and Erkki Ormala (2005) Five-Year Assessment of the European Union Research Framework Pro-grammes 1999-2003, http://europa.eu.int/comm/research/reports/2004/fya_en.html


their quality of life through enhanced partici-pation in society. It will also result in benefits for the society and the economy at large, for instance, by boosting electronic commerce or electronic public services to the citizen.

The approach I am adopting is founded on a solidarity-based economy. My aims are to pro-mote the approach “no one held back and no one left behind”, through open access to serv-ices and the use of ICT to improve the quality and efficiency of public services. This will be crucial in the coming years with rising numbers of elderly people in our society.

Public services are a centrepiece of the Euro-pean social model, decisively contributing to social cohesion and economic activity. There is a strong political momentum for public service reform in the face of combined pressure from budgetary constraints and societal challenges like ageing and immigration. Just like in the case of purely commercial services, a better exploi-tation of ICT possibilities will help modernise and innovate services of public interest, such as healthcare, education and all other administra-tive services. This means, improving their qual-ity, efficiency and accessibility, and thus their long-term sustainability.

Conclusion

Looking at Lisbon after five years, it is clear that Europe needs to take steps to raise competitive-ness; steps that are significant, give fast results and which move us in the right direction. With only six years to go to 2010 we have to focus on areas where visible results can be delivered fast.

Information society is the sine qua non of Lisbon

ICT is one major driver of change that can cred-ibly be expected to deliver the changes needed to move the Lisbon Strategy ahead. By contrast, without ICT, Europe’s hopes for growth will go nowhere… these days very little moves without ICT.

The Information Society policies that I intend to promote will be in full support of the Lisbon

Strategy. They will be significant. They will de-liver results. And they will definitely get Europe moving in the right direction.

European economic competitiveness depends on providing the right enabling environment for businesses to be efficient and innovative. We must use ICTs to stimulate the growth of the knowledge economy, to promote competitive-ness through e-communications and e-services, and to reinforce innovation through a research programme that is strategic and big enough to meet the challenges we face. At the same time, we must take care to streamline rules and red-tape, to reduce obstacles to new markets and to support investment in innovation, infrastruc-tures and people.

There is a need for a new sense of urgency. Comparisons with the US and Japan are quite familiar. But increasingly the striking compari-sons are with the new giants of China and India as well as, Korea and Brazil, where proactive ICT strategies are helping to yield staggering double figure industrial growth rates.

Europe has a mature economy. We cannot ex-pect to reach such high rates of growth. But we have to be vigilant and to see that the rest of the world is moving and it is moving fast. In other words… if we don’t take this seriously… the rest of the world will!

Viviane Reding is a Member of the European Commission responsible for Information Society and Media.

European View


60

The Lisbon Strategy, adopted in 2000, seeks to make the European economy the most dy-namic in the world by 2010. Five years later,

we need to ask ourselves whether we could not do better to reach this objective. Unemploy-ment is still a major problem for Member States, while our ability to cope with competition from other regions is sometimes questionable and our growth rate much lower than that of Asia and North America. Lisbon, in that sense, is about improving people’s daily life in the EU and about catching up with our international competitors.

Energy policy will be a key element in the Com-mission’s attempts to achieve a coherent re-sponse to the challenge of Lisbon, and also of Kyoto. With oil prices likely to remain high, our growing dependence on imported energy, and the competitiveness implications of meeting our Kyoto targets, energy policy has to be at the top of the agenda. Without reliable, affordable and safe energy, our economy would simply come to a halt. In other words, we depend on energy for our prosperity. I am determined to make sure that energy policy contributes to solving these problems.

Lisbon and its implications

To meet the Lisbon challenge, I see three ma-jor areas related to energy where, in collabora-tion with colleagues in the Commission, in the European Parliament and the Member States, progress can be made.

Completing the Single Market

It is now time to complete the work which began in 1986 and which was due to be fin-ished by 1993. Some aspects of the Single Mar-ket – notably trade in goods – are essentially complete, but there are exceptions. Markets for

energy products have been opened to compe-tition in some Member States, but not yet in others. I would like to see the market open-ing up throughout the Union, not in the inter-est of ideology or some abstract doctrine, but because I believe that the force of competition, driving prices down and improving service, is in the best interest of citizens. The Single Market is all about providing choice to consumers. At present, this choice is not always available.

The first task is to ensure the full and imme-diate transposition of the electricity Directives. Last month, the Commission began the second stage of infringement proceedings against ten Member States that have failed to implement the Directives. We will carefully examine the man-ner in which the requirements of the Directives have been implemented, and take the necessary steps if there is incomplete transposition. On the basis of what I have seen so far, there is rea-son for some optimism: all – or almost all – the legislation adopted by Member States conforms with the requirements of the Directives.

If the second package leads to a real outbreak of effective competition in continental Europe, legislative initiative may not be needed. Much depends, of course, on how the Directives are implemented in practice, both at government and company level, particularly regarding un-bundling – the separation of monopoly network business, transmission and distribution from competitive activities, i.e. generation and sup-ply. During this year, we will monitor how the Directives have been implemented, and how implementation affects the market. In particular, we will examine whether markets are integrat-ing, or remain national in scope.

At the end of 2005, the Commission will present an exhaustive Report reviewing the situation. The report should launch a wide-ranging de-bate, enabling us to draw conclusions, later, in 2006. In my view, sufficient time, consultation and analysis will be necessary before deciding

The Lisbon Strategy and Energy: Making the Connection

By Andris Piebalgs

Andris Piebalgs


on whether further action is needed.

Competition law, both at Community and na-tional level, will also need to play an important role. Long-term gas supply agreements will re-main an integral part of the European gas mar-ket for a long time, to ensure security of sup-ply. Long-term electricity purchase agreements by energy intensive industry will also continue to exist. For this reason, we will have to make sure that competition rules are taken into ac-count by all stakeholders. I have agreed with my colleague, the Competition Commissioner Mrs Neelie Kroes, that the forthcoming report on energy markets will be prepared by a joint Competition/Energy team, presenting the full picture. Such an integrated approach will allow us to form a solid judgment on what remains to be done.

Our energy industry needs a stable regulatory environment to invest: this must also be taken into account. I look forward to working with the Parliament and with Member States to extend this fundamental economic point throughout the EU.

Our policy in this respect, of course, does not stop at the Union’s borders. Projects are under-way to encourage regional cooperation, and eventual integration of at least some of our neighbours into the single market for energy products. Results so far are encouraging. Take the example, the South East Europe Energy Community, which will, in the near future, cre-ate a unified energy market between ten coun-tries in the region from Croatia to Turkey. This unified market will be based on a stable regula-tory and market framework capable of attracting investment in gas networks, power generation and transmission networks, so that all countries have access to a reliable gas and electricity sup-ply, essential for economic development and social stability.

Security of supply

In the view of the International Energy Agency, Europe’s energetic dependence is likely to in-crease in the next decades. We must react now. It is important that the Commission leads the debate on how to address these trends, which

have profound implications for our long-term security. I will table a Green Paper on this issue by the end of this year.

Security of supply can be achieved through di-versification of suppliers. To this end, our task is to secure the good relations we have established with key energy exporting countries. Russia is, for example, our most important supplier of oil and gas: a permanent dialogue on energy has been in place since 2000. Other partners include Norway, Caspian Sea countries and OPEC. We need good working relations with all of them. In the case of OPEC, we are about to initiate a dialogue between consumer and producer countries. It will seek to establish confidence and predictability at a time of high oil prices.

Security of supply also requires us to rethink the way we use energy. Energy must be used in a more cost effective and efficient manner. I hope to see the Commission lead a new major European Energy Efficiency Initiative with the objective of saving, by 2010, the equivalent of 70 million tonnes of oil that would otherwise be consumed. This would save 15 billion Euros per annum. A Green Book on energy efficiency, to be followed by a wide debate, will be published by the Commission before summer.

Finally, security of supply makes the develop-ment of renewable energies even more neces-sary. The EU has fixed the objective of 12 % renewables in overall energy consumption by 2010. This means a reduction of CO2 emissions by 200 million tonnes. It also means reducing our dependence by 5.5 % by 2010 and creat-ing 500,000 new jobs. To this end, we must fur-ther develop wind energy and use biomass for producing electricity. Nuclear energy also has a role to play in ensuring the diversification of energy sources, provided that safety of facilities and proper management of nuclear waste can be guaranteed. The Commission attaches great importance to this, on the basis of the subsidi-arity principle.

All these actions can make a major contribution to our Kyoto objectives, and at the same time, make an immediate and appreciable contribu-tion to Community competitiveness.

European View

The Lisbon Strategy and Energy: Making the Connection

62

Research and Education

As noted earlier, Europe depends on energy for growth and prosperity. In this respect, research is essential. However, compared with the USA and Japan, Europe is lagging behind in this area, with the exception of research into clean coal and ecological technologies. The question is for how long can we hold even this lead. Given the technology-driven response of the US to call for environmental action, and the likelihood that this will be given increased focus in the future, there is a real risk that Europe will fail to main-tain its leadership. Research on new resources is very much needed, as is on existing energy technologies.

Research is of course linked to education. As a former teacher, I am in a good position to know that education systems must take into account the needs of the economy and of science. Now, education is primarily within the competence of the Member States, and in some cases, of re-gions; the Commission has a limited role in the area. We, nevertheless, take a real interest in overall trends. In many Member States, there is a clear decline in the number of students who study the sciences or related subjects, like math-ematics or engineering. I do not wish to deni-grate other disciplines, and in no doubt, as a scientist by training myself, can I be accused of favouring my own; but it is essential that our knowledge base, and our pool of educated workers, assist us to advance.

I also see science as part of the basic tool-kit of an educated person; and scientific illiteracy is just as bad as any other kind. All too frequently, I hear people say that “science is too difficult” or “much too hard to understand.” If that is to be our attitude, we can forget about our Lisbon objectives right now.

A related issue is the involvement of women in higher education, particularly in sciences. It is a fact that, generally, the participation rate of women in sciences is low; and this is a problem which needs to be addressed. We cannot ex-pect to increase our competitiveness if half our population is left on the sidelines.

Finally, it seems to me that, if we want to make the Lisbon Strategy a success, we have to make

a success of enlargement and ensure that we have the necessary budget to do so.

I suppose many people think that the enlarge-ment of the ten new Member States can be tak-en for granted and that all we have to do is sit back and enjoy the results. I am afraid this is not the case. The successive steps which led my country, and the others, into the European Un-ion was only the beginning of the process. In particular, we need to ensure full participation in the Single Market, including full implementa-tion of the acquis. Furthermore, public opinion needs to look at enlargement as an opportunity and not as a threat.

When it comes to financing, we will need to convince Member States, in the context of the new financial perspectives 2007-2013, to pro-vide the necessary framework for becoming more dynamic.

Post-Lisbon

Revised Lisbon is about making up for lost time. Energy lies at the heart of this strategy and of our daily lives.

The EU, in many respects, is like a wealthy per-son living on an inheritance, who begins to no-tice that the money is running out. We need to look at best practices elsewhere; we need to eliminate complacency.

This is not something the Commission can do on its own; we need to work closely with the other EU institutions, with academics, with civil society, with business and trade unions. If we can agree on the analysis of our situation, the most important step will have been taken.

Andris Piebalgs is a Member of the European Commission responsible for Energy.

Andris Piebalgs


The word “reform” has become common cur-rency in European eco-nomic policy rhetoric. Unfortunately, in many areas and in many Eu-

ropean countries, thoroughgoing reforms re-main to be translated into reality. The Slovak government has implemented numerous struc-tural reforms in the last two years, the most sig-nificant being the tax reform, healthcare system reform, social system reform, labour market re-form, pension reform and public administration reform. These actions have led the World Bank to label Slovakia the world’s leading reformer last year.

Slovak reforms and the European Union

The Slovak reforms have generated positive re-sponses but, also several question marks. Among other things, they contributed to discussions, often quite emotional, on out-location and tax competition. Slovakia has even been accused that our income tax has been set so low that it may threaten the accumulation of sufficient resources to support economic growth. Conse-quently, development in Slovakia will have to be financed, allegedly, by the more developed European countries via their contributions to the EU budget.

This is simply incorrect. In fact, Slovak tax re-form has been fiscally neutral – it does not lead to any reduction in tax receipts. The reform sim-ply transfers the tax burden from direct to indi-rect taxes. At the same time, the significant sim-plification and rationalization of the tax law has substantially reduced the burden on production and, thereby, acts as a significant stimulus to in-vestment and job creation. Therefore, it should boost rather than reduce growth potential of the Slovak economy. Given that the size of national contributions and access to EU finance is largely determined on the basis of the gross domestic product (and not the tax burden), the Slovak tax

reform should in fact expedite the growth of our net contributions to the EU budget.

Out-location

The issue of out-location is undeniably an im-portant economic phenomenon affecting most European economies. Yet, any fruitful debate on it must begin with a correct specification of the issue at stake. In this case, one should not ask how we can avoid the “problem of out-loca-tion”, but, instead, how we should transform the phenomenon of out-location from a potential problem into a real opportunity.

Out-location is not a consequence of the recent EU enlargement but a phenomenon produced by economic globalisation. It is a logical result of the opening up of trade and investment over the past decades. The faster technological progress has also contributed to reducing the complex-ity and costs of transferring production activities abroad. Within Europe, the relocation of some productive activity into Central and Eastern Eu-rope is mainly due to the availability of lower labour-costs. However, economic reforms have also contributed to this process by improving the business environment, which many foreign investors now view as more favourable than that in their home countries.

For host countries, like Slovakia, the benefits of this process, in terms of increased production, employment and export revenues, are obvious. However, even home countries can benefit from the process of out-location. Most available stud-ies conclude that the process of out-location re-sults in overall welfare gain in the United States: as economic activities relying on cheap produc-tion are moved overseas, they are replaced by new activities with higher added value. Further-more, out-location may help domestic industries in Western Europe. By allowing firms to frag-ment and relocate their activities according to the best conditions, out-location provides firms with the opportunity to stay competitive by

Commentary: Europe and the Need for Reforms

By Ivan Mikloš

Ivan Mikloš


gaining access to lower cost inputs.

The causes and consequences of out-location are discussed in greater detail in a recent note prepared by the European Commission. Its con-clusions are clear. The phenomenon poses no major problem at the macroeconomic level, al-though it does require a measure of adjustment, which may affect some sectors more than oth-ers. More importantly, for the EU to turn the phenomenon of out-location into a real oppor-tunity, it must be able to adjust and develop new areas of comparative advantage in the technologically advanced sectors of the econ-omy to prevent the risk of a deindustrialisation process taking place. The Lisbon Strategy for growth and employment is directed at precisely this goal.

I strongly believe that reforms of the sort re-cently implemented in Slovakia are an integral part of this adjustment process. Tax reform, in-cluding the introduction of a flat income tax rate and reducing income and corporate tax rates in favour of indirect taxes, should help stimulate entrepreneurship, job-creation, and investment in the technology and knowledge sectors. It should also enhance individuals’ efforts to find employment and invest in human capital by re-ducing the disincentive effects of income tax. All this, without necessarily sacrificing the pro-gressive nature of the tax system.

Social and labour market reform, aimed at in-creasing the flexibility of the labour market, combined with modern education and training policy, should ensure that the structure of skills and employment adapts more quickly to changes in comparative advantage. Pension and health-care reforms, by reducing the immense pressure on public finances, should contribute to a stable and predictable economic policy, which is so important in times of industrial restructuring. It should also lead to more resources being avail-able to education and various policies aimed at stimulating R&D and innovation, all of which are essential for the successful development of a knowledge-based economy.

Conclusion

Thus, the reforms we have implemented in Slovakia should in no way be viewed as intro-ducing a zero-sum logic into our relations with other EU member states. Their role is to help create the conditions in Slovakia for a flex-ible economy, responsive, in the context of the increasingly globalised world economy, to the changes in comparative advantage that ris-ing living standards will inevitably bring. This is precisely the situation currently facing many developed European economies, and they, too, must continue the reform process that many of them have begun. In this respect, I remain quite optimistic.

I welcome the recent reform packages in Ger-many and France. I understand that such steps are not always popular and may be politically difficult, but I hope that positive experiences with structural reforms in Slovakia and other new member countries will ease their imple-mentation in the rest of Europe.

Ivan Mikloš is Deputy Prime Minister and Minister of Economic and Financial Affairs of the Slovak Republic.

Commentary: Europe and the Need for Reforms

European View66

Jacques Delors is con-sidered one of the most successful Presidents of the European Commis-sion. His outstanding reputation is based on

his primary vision of the European Single Mar-ket. Delors could count on Mitterrand and Kohl, both European visionaries at the time. Today, the Lisbon Agenda is the big project. Europe badly needs more employment and competitiveness in times of economic stagnation where growth is at an all-time low and unemployment at an unequalled high. The Heads of State and Go-vernment, however, appear not to share a com-mon vision on the future of Europe. Five years later, they have to face the question whether the Lisbon Agenda is still among the governments’ political priorities.

The current handling of the Stability and Growth Pact (SGP) serves as a good example. Unani-mously adopted in December 1996, the rules of the Pact have provided a climate of monetary stability that lasts until today. Germany once ini-tiated and promoted the Pact. Astonishingly, it is the very same country that has violated the Pact three times in a row, recently, damaging its credibility completely. After the spring Summit of the European Council, it is evident that Ger-many and France have succeeded in stripping the SGP of its straitjacket.

Yet, the argument of financial stability and growth contradicting each other is a myth. Sus-tainable fiscal policy and price stability are a fundamental precondition for growth, competi-tiveness and employment. What really matters is whether you accept budgetary restrictions on a European level that are necessary in a single currency area. It is simply not true that govern-ments can no longer spend money on structu-ral reforms or on research under the Pact. The same holds for the notion of the governments of Germany and France that additional spending automatically means going beyond the ceiling

of 3%. It has become common practise to for-get about the fact that the main aim of the SGP is a balanced budget. This leaves governments with substantial room to manoeuvre before they reach the 3% ceiling.

A Pact tailored for France and Germany

The governments of France and Germany ig-nored this basic fact. They finally managed to exclude a broad range of budgetary measures from the calculation of the deficit. The ‘specific economic situation’ of each Member State is supposed to be considered. The agreement to soften the Pact, takes away any incentive to pro-mote sustainable budgetary policies, let alone balanced budgets. If the deficit rises above the 3% ceiling, governments will always find a more or less valid excuse. A more flexible handling of the Stability and Growth Pact primarily suits the big net contributors. In the case of an excessive budgetary deficit, their financial contributions to the EU coffers can be taken into account. And as the net contributors will almost always be able to fight off a deficit procedure, the de-facto rules of the Pact will be enforced at the expense of smaller, less powerful Member States.

The Pact is now subject to individual assessment. This means one currency, but 25 interpretations. EU finance ministers agreed to exclude the cost of German reunification in the calculation of German deficits. It should be noted that the yearly reunification costs today amounts to four per-cent of GDP. So any German government would easily get away with it. In fact, it would come nowhere near the deficit procedure, let alone hard and fast sanctions. 15 years after German reunification, this approach constitutes an offence to the new Member States as they are facing a comparable burden. As a consequence, allowance had to be made for pension reform in these countries under the revised SGP.

Lisbon - the Scapegoat:How France and Germany Bailed Out from the Stability Pact

By Alexander Radwan

Alexander Radwan


EU Commission needs regulatory compe-tences

The Stability and Growth Pact has been in dire straits ever since France and Germany were let off the hook by the EU finance ministers de-spite a Commission recommendation to move them into the final stage of the excessive defi-cit procedure. A European Court of Justice rul-ing clarified the respective roles of the institu-tions in the application of the Pact. The Court ruled that EU countries could not put the Pact “in abeyance” and confirmed the Commission’s right to launch excessive debt procedures. Paris and Berlin then promised to bring their deficit below 3% until 2005. In the case of Germany this would equal a cutback from 3.9% in 2004 to 2.9% in 2005. However, selling pension funds or drawing on privatisation profits, in order to desperately meet the target is anything but sus-tainable. Besides, with unemployment exceed-ing five million and the growth rate being at a sluggish one per-cent, any claim of a substantial reduction of the deficit is window-dressing.

The main shortcoming of the Stability and Growth Pact is the fact that sanctions proposed by the Commission can be turned away by a blocking minority among finance ministers, i.e. the “deficit sinners” themselves. Persuading their fellow EMU members, France and Germa-ny (both about to break the SGP rules for the fourth time in a row) managed to put the exces-sive deficit procedure on hold. Italy gets away with it, too, after cutting the deficit back under unclear circumstances. On the other hand, a procedure is launched against the Netherlands that have reduced their overall debt signifi-cantly over the last years. The signal the bigger EU members send out to the rest is this: “We don’t care about rules which we haven’t made ourselves!” This, of course, is going to have a certain impact on the acceptance of grand EU projects such as the Lisbon Strategy or the Euro-pean Constitution.

It is obvious that the Stability and Growth Pact needs to be amended. It was wrong, however, to go for further flexibility. Rather, the obliga-tion to reduce debt in times of economic growth should be implemented more strictly. Existing provisions will remain ineffective as long as they are not accompanied by more enforcing powers

on the part of the Commission. It would have been wise to introduce a mechanism requiring unanimity in the Council when rejecting a Com-mission recommendation. As Member States were obviously not able to bring themselves to strengthen the Commission’s competences for fiscal policy coordination, it is now up to other political players, like the European Parliament, to encourage the Commission and to give the necessary support. In any case, the Commission ought to monitor and benchmark the fiscal poli-cies of the Member States and scrutinize deficit sinners. The Lisbon horse-trading?

The modified Pact has been much-lauded by the Heads of State and Government at their Sum-mit in Brussels. The plot was this: More spend-ing on education, research and infrastructure projects are ways to reach the aim of the Lisbon Strategy, i.e. to become the most competitive region in the world. The fact that such budget-ary measures would all potentially come at the expense of future generations, of course got no mention. As the provisions of the SGP can only be amended by unanimity, there is a sneaking suspicion that governments of the big net pay-ers “bought” the required concessions off their EU partners. The line probably was that reform of the Pact could be compensated by a more le-nient position towards the coming financial per-spective covering the period from 2007 to 2013 (agreement on which is also subject to unanim-ity). Berlin and Paris are ready to pay more into the EU’s coffers as the price for a more “flexible” Stability and Growth Pact.

The Brussels summiteers are boasting about ren-dering a service to the Lisbon agenda. Far from it! The naked truth is that the loosening of the Pact comes at the expense of the Lisbon goals. It is a matter of fact that the structural deficits of the European economy and the relative lack of competitiveness are detrimental to higher growth rates. Adherence to the criteria of the Pact (as they used to be) would safeguard a sta-ble currency through sustainable and balanced budgets. This would allow for tax cuts and fos-ter growth and employment. Non-compliance with the Pact’s criteria may help create a bet-ter economic appearance towards the election date, but it definitively leads to an increasing

European View

Lisbon - the Scapegoat: How France and Germany Bailed Out from the Stability Pact

68

burden for future generations. We tend to live at the expense of our children and grandchildren, which is one of the problems the Lisbon agenda shall actually avoid. Heads of State and Govern-ment have been talking a lot about Lisbon, but they have not delivered.

Alexander Radwan is a Member of the European Parliament and Economic Affairs Spokesperson of the EPP-ED Group.

Alexander Radwan


The European Council, at a meeting on 23rd and 24th March 2000, adopted what became known as the “Lisbon Strategy”. It set out to

confront what it called a “quantum shift result-ing from globalization and the challenges of a new knowledge-driven economy”. It did so at a time when the Council said the Union was “experiencing its best macro-economic outlook for a generation”, but had “more than 15 million Europeans still out of work”.

The Strategy covered policy areas that were mainly within the competence of Member States, not the Union itself, and the ambitious goals set at Lisbon were to be achieved by a new open method of coordination, whereby the setting of guidelines and the exertion of peer pressure, would speed up the necessary reforms. These reforms were also spurred on by the dramatic growth in the productivity of the United States economy which, after a period of European catch up, was then powering ahead of Europe in its overall competitiveness.

Interestingly enough, this 2000 version of the Lisbon Strategy paid little attention to an issue that has come to dominate the debate in 2005 - what the Kok report has described as the “com-bined challenges of low population growth and ageing”. The fact that it faces up to the impact on economic growth of low population growth and ageing makes the Kok report, and the Bar-roso Commission’s response to it, more realistic than the original Lisbon Strategy of 2000.

In this article, I would like to offer some sug-gestions on how the member parties of the Eu-ropean People’s Party (EPP) can help achieve the Lisbon goals. I will draw on my experience of over thirty five years in Irish politics, and on my more recent studies of the United States

economy.

Speaking on the Lisbon process, Jean-Claude Juncker, Luxembourg Prime Minister, and one of our most distinguished EPP leaders, said:

“We all know what we need to do, but we don’t know how to win elections after we have done it”.1

This sums up the challenge facing the EPP. The Party must come up with a method for turning unpleasant pension, healthcare and labor mar-ket reforms into election winning strategies.

That seems like a tall order. But do we really have any choice?

Europe’s low birth rate at the core of the problem

Between 1960 and 2000, the average depend-ency ratio (defined as the number of persons aged 60 or over, relative to the number aged between 15 and 59) for the EU 15 rose from 26 to 35 dependents. At the same time (thanks to more immigration and a higher birth rate) the dependency ratio for the United States remained constant at 25.

Now at 35 dependents, the dependency ratio for the EU 15 is (unless we increase our birth rate) expected to reach 47 dependents by 2020 and 70 dependents by 2050.2

Basically, fewer and fewer people of working age will have to support more and more elderly people. There will be almost as many people over the retirement age than there will be peo-ple of working age.

The problem is, of course, not exactly the same for every country. The age dependency ratio

The Challenge of Lisbon for the European People’s Party

By John Bruton

1 Financial Times, 2 February 20052 “An agenda for a Growing Europe” Sapir Report (2003)

John Bruton


for Spain in 2050 will be 73.8 and in Italy 68.1, whereas it will “only” be 46.7 in France and “only” 39.9 in Britain. But present projections are that the age dependency ratio in the United States in 2050 will be 34.9, which will be little more than half the average European rate.

So even if President Bush felt he needed to de-vote his State of the Union address to the pros-pect of long-term deficits in Social Security and Medicare, we in Europe have a much bigger problem. The State of our Union, as far as age-ing is concerned, is much more severe!

But, it is also worth remarking that, when one is looking as far ahead as 2050, one does have the time to do something to change the trends, and one is not confined to unpleasant welfare reforms as the only means of bridging the age-ing gap. A substantial increase in the European birth rate could, even without more immigra-tion, begin to reduce the projected dependency ratio by as early as 2025 – which is well within the expected lifetime of most readers of this pa-per. The relevance of achieving a higher birth rate is hardly discussed at all in the review of the Lisbon Strategy. It is almost as if it is a taboo subject. Why?

The Commission’s most recent communication on the Lisbon Strategy3 says “While the issue of low birth rates should be properly addressed as part of a long-term policy, raising employ-ment levels is the strongest means of generating growth and promoting socially inclusive eco-nomics” and it goes on to add that the “huge potential” of women “in the labour market” re-mains to be fully “exploited”.

Given that the time available is finite and peo-ple have to make choices, the “exploitation” of this “potential” of women in the labour market could well have the effect of preventing them from having as many children as they them-selves would otherwise wish. That could even further reduce the birth rate. It would further worsen, in the medium term the dependency ratio. Fewer children today would mean fewer workers tomorrow and fewer workers tomor-

row would mean fewer contributors to the costs of caring for the elderly.

In promoting higher labour force participation rates among those of childbearing age, a choice arises between short and medium term social benefits. This choice needs to be honestly de-bated, even if that debate could be a conten-tious and difficult one which called some well established social goals into question.

The Lisbon Strategy seeks to increase what it calls the “participation rate”. “Participation” is defined as taking part in paid work. A parent at home, looking after a number of small chil-dren, is arbitrarily deemed not to be “participat-ing” in society in accordance with the measure used by economists. But that is a very narrow and economistic measure of “participation”. A new broader measure of participation is needed which would place a higher social valuation on parenting, and this new valuation should be ex-plicitly included among the Lisbon goals.

If the tax code is altered, as it has been in some countries, artificially to discourage a choice to stay at home and look after children in order to promote “participation”, then the birth rate will fall still further.

In the short run, that may save money on the schooling of extra children. But, in the long run, it will deprive society of the young workers who will be needed, sooner or later, to pay the taxes to finance their parents’ and grandparents’ pensions and nursing home care.

The need to devote more time to paid work is not the only possible obstacle to having more children. Indeed some countries with high fe-male participation rates in paid work, have higher birth rates, than other countries which have both lower paid work participation rates and lower birth rates.

Other factors play a part. High housing costs and unduly prolonged third level education may postpone the time when a couple can af-ford to come together to have children. Avail-

European View


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3 “Working together for growth and jobs – a new start for the Lisbon Strategy” (COM(2005)24)

ability of childcare may also be a factor, but the data is ambiguous on this. Taking a prolonged period of parental leave may interrupt the accu-mulation of pension rights or progress along a chosen career ladder. Anything that adds to the high cost on a decision by either a father or a mother to take responsibility for having children deserves to be examined if we want to give Eu-rope a more balanced demographic structure. There is an incentive distortion if the cost of rearing children is imposed mainly on families, and the cost of caring for the elderly is mainly taken over by the State.

From an accounting point of view, Philip Long-man says:

“Older citizens consume far more resources than children do. Even after considering the cost of education, a typical child in the United States consumes 28% less than the typical working age adult, whereas elders consume 27% more, mostly in health related expenses”.4

On the basis of such figures, there is a very strong economic case in terms of maintaining Europe’s stock of human capital for giving sub-stantial family allowances to European families who are willing to have more children.

Can difficult choices be sold to the electo-rate?

But, whatever way you look at it, this is a prob-lem that can only be solved in the medium term. A higher birth rate next year will make no dif-ference before 2025 or later. In the shorter term, difficult choices also have to be made. These choices include liberalising the labour market, reducing the reservation wage, postponing re-tirement and restricting health benefits. And, as Jean Claude Juncker points out, these choices have to be made by politicians, most of whom face the need to be re-elected within the next three years, not the next twenty!

How do you sell unpleasant policies to an un-willing electorate?

I make no claims to special expertise in this mat-ter, but I do have some experience derived from my time in Irish politics over thirty-five years.

My own experience, as Irish Finance Minister who introduced very tough budgets in the 1981-82 period, is that when the public sense there is a national crisis requiring unpleasant action by the Government, they will support their Government, so long as the necessity for the action is explained to them in clear language by a united team that has its full heart in the job in hand. Half-hearted, divided, or uncon-vinced Government leadership will convince nobody. Half-hearted, divided or unconvinced implementation of the Lisbon Process will go nowhere.

Another problem that a reformist leadership will face is a demand from party supporters when asked to support sacrifices now, that they be shown “light at the end of the tunnel”. In other words, party supporters want firm assurances that, if the unpleasant medicine is consumed to-day, there will be a complete cure within at least a week! While it is easy and sometimes neces-sary to give such assurances, they do not always turn out to be true. An unexpected change in global conditions – such as a rise in interna-tional interest rates or a fluctuation in currency values – can postpone the arrival of the benefits of even the best designed reform programme. This happened in Ireland in the 1980’s.

Some of the reforms that will need to be under-taken – reducing job security or raising the re-tirement age – will eventually increase employ-ment and reduce taxes or deficits. But that may not happen until well after the next election. And that is simply too late for today’s Prime Minister!

One useful approach, which was found to be particularly effective in Ireland in the late 1980’s, is that of getting opposition parties and social partners to buy into the reform programme, at least in part. Then, even if one does not win the next election, one has at least got the satisfac-tion of seeing their programme implemented.

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4 “The Global Baby Bust” by Philip Longman in Foreign Affairs, May/June 2004


And, who knows, you may get the credit for the results of your reforms in the next election after that.

This was our experience in Ireland with the budgetary policies of 1982. The budget was defeated in Parliament, and an election ensued which the Government lost. The new Govern-ment that came into office put through 90% the budget they themselves had voted against a few months before. Then they, in turn, lost an election quite soon afterwards, and the original Government was re-elected.

Some EPP parties are now in opposition and are facing a Government of the left which is trying to implement Lisbon reforms. Should an EPP party adopt the tempting opposition tactic of destructively criticising what the Government is doing, or should it, on the other hand, adopt a policy of qualified support for what its politi-cal opponents are trying to do?

I think qualified support is the best tactic. Ire-land’s painful decade of fiscal correction lasted from 1980 to 1989 and in the last two years of that time my party, Fine Gael, was in opposi-tion.

In 1987 our then party leader, Alan Dukes, adopted a policy that was without precedent in Irish political history. He said that if the Gov-ernment continued on a path of fiscal correc-tion, we would not vote against its measures in Parliament. He got a lot of grief from his party supporters and parliamentary backbenchers for taking this course. He was told that the party would lose it’s identity and would disappear because its policies would be indistinguishable from those of its main political opponents.

His critics were proved completely wrong. When the election came round in 1989, Fine Gael ac-tually increased its representation, notwithstand-ing its qualified support for the policies of, what had by then become a rather unpopular Gov-ernment. Fine Gael was seen by the electorate as being sincere rather than opportunistic, and it was rewarded rather than punished when the

votes were counted.

Political sincerity and personal conviction will be essential to the success of any drive by EPP parties to implement the Lisbon Strategy and make Europe a more competitive and knowl-edge-based economy.

As I said earlier, we will convince no one else unless we are convinced ourselves! Given the ageing profile of our European workforce, it would be unconvincing for an EPP party simul-taneously to oppose immigration of appropri-ately skilled people to Europe, while at the same time claiming that it wants to keep costs down and enhance the flexibility and effectiveness of our workforce. Notwithstanding the super-ficial popular support that an anti-immigrationstance might attract, the underlying inconsist-ency would penetrate into the public conscious-ness and undermine its legitimacy. Integration and the creation of a positive European alle-giance amongst immigrant families is another matter and is something about which we can learn from American experience.

Retirement or renewal – the choice for Eu-rope’s “baby boom” generation

The Lisbon Strategy, in its present form, will not change Europe’s demography. That is a fact. Perhaps not a very palatable one. But a fact, nonetheless.

As a result of demography, German public spending on pensions, even after accounting for a reduction in future benefits written into cur-rent law, is expected to swell from an already staggering 10.3% of GDP today, to 15.4% in 2040, while the number of workers available to support each retiree will shrink from 2.6 work-ers to only 1.4 workers per retiree.5

Raising the retirement age would, to some ex-tent, ease this burden of old age health and pen-sion benefits. But a rapid decline in physical fit-ness among the population could make a policy of later retirement harder to sustain.

5 Longman op.cit.

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In the United States, declining fitness among the general population already causes this problem. Increases in obesity and sedentary life and work styles are causing disability rates to rise even among the population who are 59 or younger. Researchers estimate that this trend will cause a 10% to 20% increase in demand for nursing homes and home care over and above the in-creases that otherwise would have occurred. In the case of European men, the percentage who are overweight ranges from 40% in France to 70% in Germany. Reversing this trend would contribute to the Lisbon goals, because it would reduce long-term health costs and would make later retirement more feasible.

But Europeans should not feel that they are alone in facing a problem of how to maintain economic dynamism, while supporting an age-ing population.

For example, the U.S. Defence Department al-ready spends 84 cents on pensions, for every dollar it spends on basic pay. In 2000, the cost of military pensions amounted to 12 times what the military spent on ammunition and more than 5 times what the U.S. Air Force spent on new planes and missiles.

Ageing, even the ageing that takes place long before reaching retirement age, may also ad-versely affect the rate of technological and or-ganisational innovation.

Older people, with family responsibilities, are less likely to take risks or move to a new work-place than are young, unattached people in their 20’s or early 30’s. The older people get, the more they value security. And those who value security are less comfortable with the process of “creative destruction” that, according to Schumpeter, is inherent in economic growth. For example, the ageing of the Japanese work-force during the 1990’s has undoubtedly con-tributed to Japan’s declining growth, by com-parison with the enhanced growth of the much more youthful population of China. The older a population gets the more inclined it becomes to use its political influence to resist change.

In truth, the achievement of the Lisbon goals re-quires a radical reappraisal of the expectations people in Europe have about “what I am going to do when I retire”.

The goal of “retirement” may have to be re-placed by goals like “retraining”, “reorientation” and “renewal” for people who are approach-ing their 65th year. What will be required will be a change in social psychology, as well as, a change in social policy. Older people will have to come to enjoy a life of renewed challenge and change, rather than the present expectation of quiescence and routine. Mentalities will have to change.

What Europe can learn from America

I would now like to turn to what Europeans might learn, in seeking to implement the Lisbon Strategy, from the historical experience of the United States of America.

The first lesson we should learn is to keep a sense of proportion.

According to US economist Robert J. Gordon European output per head was 5% higher than American output per head was in 1820.6 Then, thanks to the expansion of the US frontier and to immigration, European output per head fell back to 93% of the US level by 1870. By 1913, Europe had fallen even further behind – to just 74% of the US level of output per head. And then, thanks to two world wars initiated by Eu-ropeans, European output per head fell even further again to 56% of the American level in 1950. The “American challenge” is nothing new! We have been losing ground since 1820!

Since 1950 Europe has, more or less, been catch-ing up. By 2000, West European output per head had reached 77% of the American level which is considerably better than where Europe was in 1950! We had got back to where we were, in relative terms, in 1913.

There has, indeed, been a falling back in Eu-rope’s relative output per head in very recent

John Bruton

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6 “Two centuries of Economic Growth : Europe chasing the American Frontier” by Robert J. Gordon – Centre for Economic Policy Research (2004)


times in the 1990’s, thanks to the much more rapid application of information technology in the United States.

The number of hours we work

But a good part of this difference is explained by the fact that Americans work more paid hours than Europeans do – more hours per week, more hours per year and more hours per lifetime. Some might say that Americans live to work, while Europeans work to live!

But this trend for Europeans to work fewer hours than Americans is a fairly recent one. Between 1979 and 2001, the average annual number of hours per year worked by Ameri-cans remained more or less stable at 1820 hours. In the same period, the number of paid hours worked in France fell from 1800 hours in 1979 to 1532 hours in 2001 – a drop of almost 300 hours work in the year. In Germany the annual number of hours worked also fell by around 300 hours and in Italy, the U.K. and Sweden, the annual number of hours worked fell about one hundred hours a year.7

In theory at least, it should be possible for Euro-peans to increase their incomes and output by reverting to the number of hours they worked in 1979. That is a choice that should at least be considered as one means of achieving the Lisbon goals.

The influence of geography and housing policy

The difference in productivity between Europe and the United States may also be partially ex-plained by factors that cannot be changed at all. For example, America has more space.

The more space you have the more productive you can be, especially in activities like retailing, wholesaling and farming. Lower productivity in retailing and wholesaling accounts for over a third of the productivity gap between the UK and the US, and for well over half the productiv-ity gap between Germany and the US. Efficient

retailing and wholesaling is much easier if you can have wide aisles in shops and warehouses and can have customised out-of-town locations for shopping malls. It is much more difficult to achieve maximum retail and wholesale efficien-cy, and consequently lower prices, in a store in the centre of a medieval European city!

Likewise, it is much easier to achieve high pro-ductivity per farm worker on the rolling corn-fields of the United States, than it is in the small fields on the small farms of Europe.

Adair Turner estimates that US productivity in retailing and wholesaling has been growing at a dramatic 6% per annum, while the typical Euro-pean growth rate in these fields has been only 1%.8

There are, however, a number of things that the United States does that Europe should reason-ably be expected to imitate if it wants to achieve the Lisbon goals.

Americans are more productive because they are more willing to move house to a new job. Eu-ropeans are much less willing, it appears, to do so, even within their own country. Many zones of high unemployment in Europe are located just outside commuting distance from areas of labour shortage.

In the United States you can easily buy a new house without even having a deposit. Banks are much more cautious in Europe. The hid-den charges – legal fees and taxes – imposed on people buying a house are much higher in Europe. Increasing mobility and reducing costs in the housing sector should be one of the goals of the Lisbon Strategy.

Competition and Higher Education

One of the reasons for US dynamism is the high level of competition between businesses. Un-derperforming companies in the United States are much more liable to be taken over, and their management replaced. One third of the com-panies in the Fortune 500 today will have lost

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7 “What’s wrong with Europe’s economy” by Aidair Turner, London School of Economics (2003) 8 Adair Turner. Op.cit.

their place within the next three years. There is no room in the United States system for com-placent “national champions”. The watering down of the EU takeover directive means that top management in a large European company can rest much more easily on their laurels than can top management in a similar United States company.

Another area where Europe lags behind the United States is in higher education.

The US spends a higher share of its GDP on higher education from public sources than does the average EU country. When you add to that the financing that comes from private sources (student fees and charitable donations), the US spending on higher education surpasses that in Europe by a very large margin. It is no wonder then that talented European researchers are at-tracted to work in US universities, contributing thereby to the US economy. US universities can afford to pay them better, and offer them better and more exciting working conditions.

In the United States, 37% of the working age population has a third level educational quali-fication. In the EU 15, on average only 24% of our working age population have a third level qualification. There is, of course, wide variation within the average.

In Ireland 35% of the work force have a third level qualification, in Finland 32.3% and in Swe-den 31%. In contrast, only 10% of the Italian work force and 13% of the Austrian have such a qualification.9

Tables published in the Sapir report show that there is a surprisingly small relationship between the number with third level qualifications, and the amount spent by Government on third level education. Perhaps it takes an inefficiently long time to get a marketable third level qualification in some countries.

Austria spends 1.7% of its GDP on third level education as against 1.6% spent in Ireland, but the proportion of the workforce qualified at

third level in Ireland is three times that in Aus-tria. This may be partly explained by the older age structure of the Austrian population, but it is a discrepancy that deserves further study.

Productivity within higher education is impor-tant. If salary levels of academics do not vary in accordance with effort and achievement, there may be less effort and achievement. The US academic world is highly competitive and this is something from which Europe could learn.

Supporting innovation

Why is it that Europe produces nearly twice as many science and engineering graduates per capita as the United States, and yet remains far behind the US in the number of patents ob-tained in the fields of science and engineering? The European Union creates only a quarter as many patents per million people as the US.

A small part of the explanation for this must be the failure, after so much effort, to bring the Eu-ropean Community Patent into operation. The fact that this long overdue help for scientific innovation is being held up because of a dis-pute about language is emblematic of Europe’s problems. As a businessman said in Davos in 2003 “National culture is an asset: nationalism is a disease, ... and Europe has that disease”.

Innovation in the United States is greatly as-sisted by the fact that Americans are not afraid to fail. Risk-taking means being willing to fail, and to try again. Europe’s banking system, and Europe’s people, are far too intolerant of the businessman or woman who has failed. As the Kok report pointed:

“Despite the evidence that failed entrepreneurs learn from their mistakes and perform better in their next business, customers and financiers are reticent to place orders (with them). Honest bankruptcy still carries too many severe legal and social consequences”.

A political party, like the EPP, can do a lot to change the perverse and unproductive hostility

John Bruton

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9 Sapir. Op.cit. (2003)


to those who have failed in business.

On a wider scale, this is the political challenge facing the member parties of the European Peo-ple’s Party. Are we prepared to take risks?

Implementing the Lisbon Strategy involves tak-ing real political risks. There is every possibility that we will fail, at least in narrow political party terms. We are asking people to change their lifestyles and their life expectations. We are not doing so in order to achieve some consumerist goal or to accumulate more money. We are ask-ing people to change now so that, as Europe gets older, it will be able to afford to preserve the essentials of what previous generations of Europeans have built – a caring model of soci-ety that is the envy of the rest of the World.

John Bruton is Vice-President of the European People’s Party and currently the Head of the European Commission Delegation in the United States. He was Prime Minister of Ireland from 1994 to 1997.

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Is Europe destined for decline in this age of accelerating globalisa-tion?

Across the Atlantic, it’s not difficult to pick up the sentiment that this is indeed the case. And in the booming econo-mies of East Asia, it is rare to hear the European economies quoted as models and inspirations for the future.

But we Europeans can only be doomed to de-cline if we decide that inaction and inertia is the response to the challenges of globalisation.

Looking ahead, the development of the glo-bal economy will be shaped by the innovation potential of America, the production potential of Asia and the reform potential of Europe. Of these three developments, I believe that the third, over time, might well be the most impor-tant.

Evolution of globalisation

We are living in what is still just the early phase of the third great wave of globalisation.

The first one occurred in the period prior to the great European catastrophe of 1914. It was a period of unprecedented expansion in virtually every area, accompanied also by major moves of population as Europeans moved West across the plains of America and East through the wil-derness of Siberian Asia.

The second one was more limited in geographic scope, but nevertheless of profound importance, covering the period from the late 1940’s to the early 1990’s. This was the age of the trans-Atlan-tic economy and the spectacular rise of Japan to its position, as the second strongest economy in the world.

But it’s the third wave of globalisation that will

be the truly a revolutionary one. It started in three stages, in 1978, 1989 and 1991, and it’s still in the phase of gathering speed.

It was in 1978 that Deng Xiaoping had to face the fact of the collapse of the collectivized ag-riculture in China. Peasants were starving, flee-ing the farms and trying to survive by grabbing whatever land they could. In the face of col-lapse, and under the threat of large-scale re-bellion, Deng initiated the famous reforms that since then so profoundly have changed China. He opened the system for entrepreneurship, and he opened the Middle Kingdom to the world.

The next collapse was the one of the Soviet communist system, so powerfully symbolized by the fall of the wall in Berlin in 1989. Within just a few years, a powerful wave of liberalisa-tion and opening up swept over Central and Eastern Europe.

And the third, somewhat less dramatic, collapse was the one of the Indian economy in 1991. Un-til then, largely driven by old-fashioned socialist ideas, the Indian economy had languished from crisis to crisis, but once the liberalisation started to work, it rapidly took off on an impressive growth path.

If we add these three major waves of liberalisa-tion together, they mean that close to half the population of the globe is now - step by step - entering the global system of production and consumption.

Already today, it is obvious that this process is changing virtually everything everywhere in terms of how our economies operate. There are very few corners – if any – of the global economy unaffected by these profound winds of change; and it is still in its early stages. For China, we have now seen a quarter of a century of this process, while for the East of Europe and India the process has gone on for little more than a decade. To start to understand the mag-

Accelerating Globalisation - Is Europe Destined for Decline?

By Carl Bildt

Carl Bildt


nitude of the change, we should envisage the process gathering pace over the coming dec-ades. But there might well be setbacks.

Indeed, the process of globalisation took some-what of a pause, as a consequence of the com-bination of the events of September 11, the dramatic decline in equity values after the burst of the tech boom and the war in Iraq. But the resilience of the process was proven by the fact that this series of profound shocks produced lit-tle more than a ripple in the long-term trends. Since then, we have seen the process starting to accelerate again.

To this process of globalisation should be added the fact that we are living in the midst of the most rapid development of science and tech-nology in the history of mankind. Although the more wide-spread use of the Internet, made possible by the web, is only little more than a decade old, it’s difficult to comprehend how the world prior to the Internet really worked. The digital information flows across the fibre ca-bles and satellite transponders are very rapidly bringing the world together.

Globalisation and Europe

Europe is more profoundly affected by this development of the opening up of the global economy than any other of the major regions.

The reason is very simple: the European econo-my is influenced both by the overall process of globalisation and by the profound increase in competition coming from the expansion of the European single market through the enlarge-ment of the European Union.

When the ten new members entered the EU last year, they together added no more than ap-proximately 5 % to the overall size of the EU economy. The coming enlargement with Roma-nia and Bulgaria will add only marginally to this figure.

But the impact of their accession goes well be-yond what this figure implies. Indeed, I would argue that the impact of this enlargement is now starting to drive up towards 50 % of the changes that we see in the economic landscape of Eu-rope.

Again, we are only in the beginning of the proc-ess. Turkey is already part of the common Eu-ropean customs union, but as it moves towards membership it will become fully a part of the integrated single market. Within the same time frame it is realistic to expect the inclusion also of all the countries of the Western Balkans in the single market.

Beyond this area, we are likely to see Ukraine, with its 50 million inhabitants and impressive production potential, move from a customs un-ion towards full integration with the single mar-ket. Whether Russia will be able to realize the potential of the common economic space with the European Union remains to be seen, but the possibility is certainly there.

Transformation of economic landscape

As the single market is made both wider and deeper, we will see competition increasing, and with this increase in competitive pressure will come a gradual acceleration of the transforma-tion of the economic landscape of all the differ-ent parts of Europe.

If investments in the past were going West in order to benefit from the opportunities there, we are now increasingly seeing investments go-ing East in order to benefit from the new op-portunities in the East of Europe and the East of Asia. While this causes some worries as to the immediate effect on employment in some of the older economies, there can be no doubt that the long-term effects will be beneficial for all concerned.

The transformation is already very visible on the level of the individual firms and indeed on the level of entire sectors of industry. It’s enough to open a daily newspaper anywhere in Europe to see how the process of change is gathering pace.

As one example, we are already seeing signifi-cant changes in the patterns of production in the automotive sector, which has always been an important part of the overall manufacturing sector in Europe. The component industry has already, to a large extent, moved east, and now, we increasingly see the new assembly plants lo-cating there as well.

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Slovakia well illustrates the trend. By its radi-cal and path-breaking economic reforms, it is transforming itself from an economy that a dec-ade ago was producing little more than useless old Soviet tanks to a country that will produce more modern cars per capita than any other in the world.

This process increases the overall competitive-ness and profitability of European industry, and gives it the strength and resources to continue to expand in the different parts of the global economy.

Over time, we will see the pattern of location of industry starting to change. It’s natural to expect that its research and development increasingly will be grouped around the knowledge clus-ters in the more advanced economies, where we will also see the centres of the increasingly sophisticated financial markets, while different production facilities will increasingly be found in the East of Europe and the East of Asia.

Instead of the labour force of the East moving West, as was often feared, we are thus likely to see the capital resources of the West increas-ingly moving towards the East.

Apart from its beneficial economic effects in terms of a more competitive European industry, this will naturally also have positive political ef-fects. It is by giving the new member countries the possibility of catching up with the older member states over the coming decades that we are truly fulfilling the promise of creating a Eu-rope that is both united and free.

This increase in competition across the Europe-an economy will also be key in driving political changes. While the so called Lisbon process has been considerable less than a success in driving change, we have seen the process of reforms driven by Tallinn and Bratislava starting to have far more profound impacts.

Over time, it is not a bad guess that the flat tax reforms, the first wave of which started in Tallinn, and the second wave was initiated in Bratislava, will turn out to have been of greater importance in driving structural reforms in Eu-rope than the Christmas tree of goals and targets that makes up the so called Lisbon process. The

Tallinn-Bratislava process is the true driver of reforms within the European Union today, and its impact is likely to increase in the years to come.

Role of the European Union

The European Union of today is already a ma-jor force in the global economy. The euro zone countries alone export more than the United States, and the European Union is the largest single export market for more than 130 nations around the world. It is, also, worth noting, that Europe is not handicapped by excessive trade deficits, that is increasingly seen as a burden on the US economy. Even on a highly competitive market like China, European export industries are performing very well.

As a major driver in the global economy, as well as in the process of globalisation, it is obvious that the EU has a profound interest in shaping globalisation in the decades to come. Commit-ted to the importance of multilateral agreements and arrangements, and with its weight in the global economy, it is only reasonable to expect the European Union to be the global leader in these efforts.

This calls for a European Union embracing not only the idea of free trade throughout the world, but also genuinely free trade inside Eu-rope itself. The ambition of the single market – the free movement of goods, services, people and capital – must be realized inside the Union; but, as far as possible, we should seek to em-brace those principles to the global economy, as a whole.

Inside the European Union, the recent row over the, so-called service directive shows that there is still some way to go until there is general recognition of the benefits to be derived from the single market. Indeed, part of the rhetoric of these debates sounds as if the old members want to protect themselves from the new mem-bers instead of embracing the huge opportuni-ties that enlargement is bringing.

Towards the outside world, the protected sys-tem of the common agricultural policy is often seen as a barrier to the possibilities of some of the poorer states of the global economy.

Carl Bildt


Over time, Europe must demonstrate in deeds, as well as, in words that it is prepared to move towards a situation where trade in agricultural products is also opened up in the same way as it is for other goods. Few steps would be as im-portant in terms of creating better opportunities, and thus also stability, for important parts of the immediate neighbourhood of the European Un-ion – be that of the fertile regions of Mesopota-mia or the rich plains of Ukraine.

Conclusion

The third wave of globalisation will, in all likeli-hood go on for many decades to come. It will provide the European economies with unprec-edented opportunities, particularly when seen in combination with the further expansion of the European single market that we are likely to see in the years ahead.

There are certainly those locked in a nostalgia for the past that drives them into the reactionary policies of resistance to all of the changes that we are seeing today. We will see this manifested in the xenophobia of barriers to immigration, as well as, in the populism of subsidies to those unable to benefit from all of the new oppor-tunities. The extremes of the left will combine with the extremes of the right in an axis of re-sistance towards a world becoming more and more open.

These forces should not be underestimated. In much the same way as our open societies in the past have been confronted with the forces of tribalism as what Karl Popper called the strains of civilisation have made themselves felt, we are likely to see how our open world will be under attack by some of the same forces of tribalism in the decades to come. For those of us that saw the defence of the open society as a critical task of our time, the defence of the open world will not be less critical.

All of this creates gigantic new opportunities for Europe. The overcoming of tribalism and open-ing up to rules-based cooperation and integra-tion across old barriers and boundaries is at the very core of the European process.

I do believe that the reform potential of Europe, driven both by the process of globalisation and

the opening up and broadening of the process of European integration itself is often vastly un-derestimated.

Europe is not destined for decline – on the con-trary; its reform potential opens for it the pos-sibility of a “renaissance”.

Carl Bildt is former Prime Minister of Sweden and Chairman of the Kreab Group.


European View82

The European Commis-sion has stressed that its main task is the imple-mentation of the refo-cused Lisbon Strategy. The problem is that the

collegium doesn’t seem to have any idea how to accomplish this.

Neither the Commission strategic objectives 2005-2009, nor the work program for 2005, nor the Commission’s communication to the spring European Council bring anything concrete to the enormous task of reviving Europe’s eco-nomic development. How have we come to this point and do we have any idea for a way out?

In the first part of this article I will give a presen-tation of the current situation, namely that Euro-pean economy is doomed to stagnate if the cur-rent development continues. Second, I briefly explore the good and, mostly, bad news in the path of the Lisbon Strategy. Third, I present my solution to the failed implementation of Lisbon: wider use of the Community Method instead of the ‘Open Method of coordination’.

Why we have to act now?

Europe, with its 455 million consumers, is now the largest internal market in the world. It is also the largest exporting power. Rapid ageing is the main problem of the world’s biggest economy.

By 2050, the European working-age population (15–64 years) is projected to be 18% smaller than the current one, and the number of those aged over 65 years will have increased by 60%. As a result, the average ratio of persons in retirement compared with those in working age in Europe will double from 24% today to almost 50% in 2050. The impact is then compounded by the low employment rate of people approaching 60.

These developments will have profound impli-cations for the European economy and its ca-

pability to finance European welfare systems. Ageing will raise the demand for pensions and healthcare assistance. At the same time, it will reduce the number of people of working age who are supposed to produce the wealth to fi-nance the system.

Commission’s projections estimate that the im-pact of the ageing population will be to reduce the potential growth rate of the EU from the present rate of 2–2.25% to around 1.25% by 2040. The cumulative impact of such a decline would be a GDP per head some 20% lower than would otherwise be expected. Already, from 2015, potential economic growth will fall to around 1.5% if the present use of the labour potential remains unchanged. On the expenses side, ageing will result in an increase in pen-sion and healthcare spending by 2050, varying between 4% and 8% of GDP. Already from 2020, projected spending on pension and healthcare will increase by some 2% of GDP in many Mem-ber States and in 2030 the increase will amount to 4–5% of GDP.

Our economy should now be booming – if we are to gather the means to keep up the welfare system in the coming decades. Instead, we are stagnating. Key European industrial sectors and companies are falling behind their international competitors, mainly in the US, but also in Japan and China. The world’s 15 biggest companies in terms of profits – excluding banking – include only 3 European versus 11 US companies. It is striking that in Germany only the automobile and automotive supplies industries have signifi-cantly gained market share in the past decade, in France only pharmaceuticals and media.

Almost every day we hear news about European companies either moving their own production or outsourcing to developing countries – mostly to China and India. Until now this has been mo-tivated mainly by cheaper working force and getting nearer to the growing markets.

The difference in salaries will diminish in the longer perspective. Salaries have already started

Efficient Execution of the Lisbon Strategy:The Balance Between the Community and the

Open Method of Coordination

By Alexander Stubb

Alexander Stubb


to grow in the hottest spots of China. I am much more worried about the next challenge of glo-balisation: the competition between continents about whose know-how and innovativeness creates the best business ideas.

The number of university students in China and India is growing exponentially. These nations are already starting to show that they will not just produce, but they are also capable to cre-ate and lead. CIA’s recent report1 says “China and India are well positioned to become tech-nology leaders and Asia looks set to displace Western countries as the focus for international economic dynamism” and adds that “the biggest firms of the world will be more Asian and less Western in orientation”. And these are Ameri-cans speaking, who according to Jeremy Rifkin “believe the best of times is yet to come and Europeans believe that tomorrow is likely to be worse than today.”2

We can only guess how deeply the progress forecasted above can influence our life. It is definite that we can stop speaking about the Eu-ropean welfare model, if we lose our positions in all fields of the economy. And it is not just Asia who is winning Europe, but we are also losing our position in comparison to the United States. Since 1996, the average annual growth in EU output has been 0.4 percentage points below that of the US. The most worrying sign is that, after having been about twice the US rate for more than 30 years, the productivity growth rate of EU-15 fell below the US level in 1996 and has since then averaged 1.4% as opposed to the 2.2% recorded for the US.

To summarize the basic facts: Europe is losing its competitiveness, while demand for public services is increasing because of ageing popula-tions. Our only chance to maintain the Euro-pean welfare model is to get new dynamism in the European economy. Something has to be done or we will be the major losers of the new century.

The good & bad news

In March 2000, the then 15 EU leaders agreed at the Lisbon Spring Council that the EU should commit itself to raising the rate of growth and employment to underpin social cohesion and environmental sustainability. The US economy, building on the emergence of the so-called ‘new’ knowledge economy and its leadership in information and communication technologies (ICTs), had begun to outperform all but the very best of the individual European economies. Eu-rope, if it wished to protect its particular social model and continue to offer its citizens oppor-tunity, jobs and quality of life, had to act with determination - particularly in the context of the mounting economic challenge from Asia and the slowdown of European population growth.

The EU set itself a strategic goal for the next decade: to become the most dynamic and competitive knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion, and respect for the environment. Ac-tions by any one Member State, the argument ran, would be all the more effective if all other Member States acted in concert; a jointly cre-ated economic tide would be even more pow-erful in its capacity to lift every European boat. The more the EU could develop its knowledge and market opening initiatives in tandem, the stronger and more competitive each Member State’s economy would be.

According to the Lisbon Spring Council the Lisbon Strategy aimed at preparing the transi-tion to a knowledge-based economy and soci-ety through better policies for the information society and R&D, by stepping up the process of structural reform for competitiveness and in-novation; by completing the internal market, modernising the European social model, invest-ing in people and combating social exclusion and sustaining the healthy economic outlook and favourable growth prospects by applying an appropriate macro-economic policy mix. Be-cause of the range of its ambition, it covered a number of areas in which the EU had no consti-

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1 Report of the National Intelligence Council’s 2020 Project, December 2004, http://www.foia.cia.gov/2020/2020.pdf2 Rifkin Jeremy, The European Dream: The Birth of a Reluctant Superpower, Challenge Europe Online journal, January 2005,

http://www.theepc.be/en/default.asp?TYP=CE&LV=177&see=y&t=42&PG=CE/EN/detail&l=1&AI=409

tutional competence and which were under the jurisdiction of Member States. Therefore, it was designed to proceed by a combination of the traditional ‘Community Method’ of EU legisla-tion, brought forward by the European Commis-sion, and via a new process known as the ‘open method of coordination’.

The idea of the “Open Method of coordination” was that Member States agree to voluntarily co-operate in areas of national competence and to make use of best practice from other Member States, which could be customised to suit their particular national circumstances. The European Commission’s role would be to coordinate this process by ensuring that Member States have full information about each other’s progress and policies, whilst making sure that those ar-eas for which it has competence - notably the single market and competition policy - would reinforce the Lisbon goals by application of the Community Method. Moreover, the Commis-sion’s monitoring would stimulate and create the necessary peer pressure to achieve these goals by publicising the results achieved by the individual Member States.

The Lisbon Strategy was created with high hopes during a historically high economic hype of the first years of the new millennium. Be-fore implementation of the Strategy got under way, Europe was already stuck in a recession. Thus, many Member States have been caught in a conundrum. Due to structural weaknesses and low demand, national economic performances have been poor. As national economic perform-ances have been poor, it has been more difficult to implement the Lisbon Strategy. It has obvi-ously been hard for some governments to keep up to their commitments in this low growth en-vironment.

I cannot resist pointing out that many Member States have not taken the execution and delivery of the agreed measures seriously enough. Com-pleting the single market, for example, has not been given the priority it required. This has kept Europe too far from the goals it must reach.

Despite disappointments, there has been progress in certain areas. Employment has im-proved between the mid-1990s and 2003. The employment rate rose from 62.5% in 1999 to

64.3% in 2003, although not only full-time em-ployment. Seven Member States of the EU-15 are set to meet the interim target of 67% by 2005. The overall female employment rate rose to 56% in 2003. Some countries have been successful in implementing policies targeted at raising the employment rates of older workers, now reach-ing 41.7%. Some European governments have introduced measures that cumulatively have attempted to remove obstacles to the employ-ment of low-paid workers, stepped up their ac-tive labour market polices, and permitted the growth of temporary employment. Mostly, this improvement has taken place thanks to the eco-nomic boom that had nothing to do with the Lisbon Strategy.

Furthermore, there has been progress beyond employment. Member States have progressed in the spread of ICT and Internet use in schools, universities, administration and trade. House-hold Internet penetration, for example, has risen rapidly, with 12 Member States meeting the targets.

The rest of the figures do not appear so posi-tive, though. Net job creation has slowed down considerably in recent years and the risk is ap-parent that the 2010 target of 70% employment rate will not be reached. The same applies to the target of 50% for older workers. On the R&D target, only two countries currently have R&D spending exceeding 3% of GDP; in these same two countries business is achieving the goal of spending the equivalent of 2% of GDP on R&D. The rest are behind on both scores.

Progress in providing every teacher with digital training is very disappointing. Only five coun-tries have exceeded the target for transposing EU internal market directives. On the environ-ment, the decoupling of economic performance from harmful environmental impacts has been only partly successful. For example, the volume of traffic in Europe is rising more rapidly than GDP and congestion is worsening, as are pollu-tion and noise levels, and the continued damage to nature. Most European countries are below their Kyoto targets, regarding greenhouse gas emissions, with only three countries since 1999 recording visible progress in their reduction.

European enlargement, while welcomed, has

Alexander Stubb


made European-wide achievement of the Lis-bon goals even harder. The new Member States tend to have much lower employment rates and productivity levels; achieving the R&D goals, for example, from a lower base is even tougher than for the original EU 15 who signed Lisbon.

Politicians from all sides have been far too slow to respond to Europe’s failure to achieve the Lisbon targets. Most of Europe still suffers from inflexible labour markets. Worse, many govern-ments still have a tendency toward over-regula-tion and red tape, compounding often deliber-ate failure to implement agreed internal market regulation. Our tax systems are riddled with in-efficiencies, besides relying on tax rates that are too high. Again, another striking comparison: in 2005, the tax burden in the EU 15 (where taxa-tion tends to be higher than in the new Member states) is expected to be 44.2% of GDP, versus just 29.4% of GDP in the US. The additional tax-es in the EU are used to prop-up unsustainably expensive welfare systems. Furthermore, many public services are run by inefficient bureaucra-cies, inflating costs still further.

Nor have politicians responded to the need to rectify Europe’s inadequate technological framework. Even as we face increasingly com-plex technological challenges from current and emerging competitors, governments fail to recognise the need for effective incentives to stimulate investment in R&D. After more than 15 years, they cannot even agree on an ade-quate Community Patent. New and expanding companies suffer insufficient access to venture capital. European education systems need to put more focus on training young people for the jobs of tomorrow. Little effort is made to attract and retain top scientific and engineering professionals. There is an old-fashioned attitude to the running of university research. Resistance to new technology continues; in some areas - nanotechnology, biotechnology, genetics, for example - it is even hardening, to eventually end Europe’s prospects for a leading role in key future industries.

The reasons for Europe’s relative weaknesses are quite obvious: Countries that fail to reform and keep the pace, risk more than a passing comment from the European Commission; they risk the disapproval of investors. Reduced in-

vestment and growth, leading to fewer jobs, are the painful result.

The clear problems in the implementation of Lisbon have created some kind of schizo-phrenic thinking for governments of Europe. They realize the failure of the Lisbon Strategy, but blame the EU for it, although, according to the ‘Open Method of coordination’, it is the na-tional governments who have the responsibility of taking the needed measures to achieve the Lisbon targets. This was also the tone of think-ing when the European Council, in Brussels in March 2004, invited the Commission to establish a High Level Group headed by Mr Wim Kok to carry out an independent review to contribute to the mid-term review of the Lisbon Strategy. The failure of the Kok report is that it doesn’t offer a way out of this schizophrenic thinking of European governments.

To summarize again: The economic boom of the early years of the new millennium gave some empty promises about the achievement of the Lisbon targets. Now, since economic growth has slowed down, we can see that real structural re-forms have not been implemented. The Lisbon targets cannot be achieved without a politically new way to apply the needed measures.

The solution

The High Level Group headed by Mr Wim Kok presented its report to the European Commission in November 2004. The report offers very little that’s new to the discussion about the Lisbon Strategy. Actually the structure, titles and goals that the report imposes for Europe are almost exactly the same with those already presented in March 2000 at the Lisbon Spring Council. Still, the paper has its use: it offers a realistic pic-ture about Europe’s economic perspective and a package of relevant concrete measures that we should take to achieve the familiar targets.

The shortfall of the Kok report is that it concen-trates in choosing measures while the problem is implementation. The report’s third chapter is devoted to implementation, but it lacks any ef-ficient proposals.

To make the Member States’ commitment stronger, the Kok report proposes that national

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governments should present a national action programme before the end of 2005. In order to engage all the forces around this key objective, these national programmes should be subject to debate with national parliaments and social partners. Action programmes should be submit-ted to the EU Commission, which should draw up a precise analysis of the 25 plans and spe-cific recommendations in each one in its syn-thesis report for the Spring European Council of 2006. While the ‘open method of coordination’ gives the European Parliament (EP) no role in the Lisbon process, the report proposes the EP to establish a standing committee on the Lisbon Strategy for growth and employment. The re-port also proposes a quite interesting idea about introducing budgetary incentives to encourage Member State achievement of Lisbon targets.

Kok’s report is right in criticizing the large amount of indicators in the Lisbon Strategy. More than a hundred indicators have been as-sociated with the Lisbon process, which makes it likely that every country will be ranked as best at one indicator or another. This makes the whole instrument ineffective. Member States are not challenged to improve their record. Simplifi-cation is vital. The proposal to establish a more limited framework of 14 targets and indicators offers the opportunity to improve the working of the instrument of peer pressure. The High Level Group considers this list to represent the best trade-off between keeping Lisbon simple and capturing its ambition and comprehensive-ness. According to its proposal, the European Commission should present to the Heads of State or Government and the wider public an-nual updates on these key 14 Lisbon indicators in the format of league tables with rankings (1 to 25), praising good performance and castigat-ing bad performance - naming, shaming and faming.

These are nice ideas but, even if they would be implemented, they are not heavy enough to solve the failure of the ‘open method of coordi-nation’. For example, cutting the amount of the Lisbon indicators is a move in the right direction but, as regards to the much advertised method of “naming, shaming and faming” - what is new in it? In principle, the same method was already established in the original Lisbon Strategy. Na-tional governments can forget the blames of the

Commission in future, as fast as they have done in the past four years. If you read far enough you can see that Kok’s group also admits that the ‘Open Method of coordination’ has fallen far short of expectations.

The European Commission published in Febru-ary 2004 its communication to the spring Euro-pean Council about ‘A new start for the Lisbon Strategy’. In the communication, the Commis-sion mostly repeats the proposals of the Kok report. The proposals about National Lisbon Action Plans and appointing a national “Mr” or “Ms Lisbon” at the government level can help in getting the Lisbon Strategy to the core of nation-al politics, but they will not solve the problem. We need something that goes much further in saving the Lisbon from the protectionist trap, where it is cursed to fall into as long as narrow national interests drive the process, instead of common European interests.

I believe that the main structural problem of the failure of the Lisbon Strategy is the very wide use of the problematic concept of the ‘Open Method of coordination’. If one looks back to the broader history of European integration, it is easy to see that the successes of integration have usually occurred when applying the Com-munity Method and the stagnations of develop-ment have been tied to growing intergovern-mentalism in the Community.

In the early days of the European Coal and Steel Community (ECSC), nobody knew which of the new European cooperation organisations would be the most potential core of far more reaching development. Many thought that the most im-portant organisation was the Council of Europe and there were enthusiastic plans of very broad economic integration, also within the OEEC. What made the ECSC more successful than the others was the Community Method. It didn’t spend its energy in fighting for integration in all sectors but, it concentrated in working with effi-cient powers in certain sectors. The crucial thing was the supranational decision making and the right given to the supranational Court of Justice to control legally that community legislation is followed by Member States.

It is hard to imagine that the free-trade area could have been created by applying the ‘Open

Alexander Stubb


Method of coordination’ in the 1950s and 1960s. The same is true for the internal market in the 1980s. In both cases the need for achieving the common targets was clear for all but, after de-ciding about the free-trade area or internal mar-ket in principle, the national governments were captured to protectionism by several national interest groups in the stage of executing the common targets. It’s horrible to even think the situation we would now be in, if Europe would have given up in the face of narrow national interests then. The Commission estimates that after only 10 years of the internal market, Eu-ropean GDP is 1.8% higher than it would have otherwise been and 2.5 million more jobs have been created. This contribution amounts to al-most 10% of the EU potential growth rate on an annual basis.

It is not that national governments are worse than the decision makers in the community level but, it is just the logic of politics. National decisions are made in accordance to national interests. These interests often collide with com-mon European long-term interests and this is especially true for executing the Lisbon Strategy. What we are seeing is the persistence of wrong priorities for Europe, priorities often determined by political objectives, rather than by economic realities.

To rescue the Lisbon process we need more Europe and less protectionism. This is possible only by expanding the scope of the Community Method and the Community budget in execut-ing the Lisbon targets. What new sectors should be implemented by the Community Method is a question that requires further study, for example by the European Commission. Allow me to give just three ideas.

First, we should create an EU level R&D fund-ing system if the national governments are un-able to achieve the Lisbon targets in this crucial field. One of the preconditions for any increase in European productivity growth is rising R&D spending. Studies demonstrate that up to 40% of labour productivity growth is generated by R&D spending. One of the most disappointing aspects of the Lisbon Strategy, to date, is that the importance of R&D remains so little under-stood and, as a result, so little progress has been made.

We should immediately execute the Kok re-port’s proposal about an autonomous European Research Council (ERC) to fund and coordinate long-term basic research at the European level. The mandate of ERC should be widened to R&D and it should be given enough resources to eliminate the gap between the Lisbon goal and the current situation in public R&D spending.

Of course, this would mean revolutionary rear-rangements in the structure of the EU budget. Politically impossible, you say? I ask, in return, how it is politically possible that we are still spending about 40% of the budget to unsus-tainable common agriculture policy. This, at same time when R&D funding, so essential to our continent’s future, is nowhere near where it should be.

Second, we should create much stricter, Com-munity level, rules on government subsidies for the private sector to ensure structural reform of our economy and full implementation of the in-ternal market. The current subsidies are harmful for the Lisbon goals, in many ways. At its height of folly are the German subsidies for the coal in-dustry: remember that the German government is one of the most eager proponents of very enthusiastic goals for cutting the carbon dioxide emissions.

Third, it is also necessary to consider common legislation about government influence on la-bour markets because the present situation con-strains dynamic development and mobility of the work force.

These ideas go to the, so-called, core of na-tional sovereignty. But can we really look into our children’s eyes and say that we wasted our chance to save Europe’s economic wealth, be-cause of disagreements on what can be decided by which federal or national institution? In my opinion, the answer is no. We have too much to risk.

The Lisbon Strategy is not about destroying the European model but, about saving it. Jeremy Rifkin, a major critic of the American model, has written: “The key to the future prosperity of Eu-rope is the quick and successful integration of the largest internal trading market in the world that stretches from the Irish Sea to the doorsteps

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of Russia. In Lisbon in the year 2000, the EU set a goal of becoming the world’s most competi-tive economy by 2010. Since then, the Member States have procrastinated and stalled in making the necessary reforms to create a single inte-grated European commercial space. If the EU can successfully integrate the potentially biggest internal market in the world so that Europeans can trade across their Member States with the same ease that Americans do across our United States, Europe will likely become the ascendant economic superpower in the world.”

Despite the pessimistic view that started this ar-ticle, I also agree with the next words of Rifkin: “Dreams require hope, optimism, and confi-dence in the future. Pessimists and cynics do not lead society into the future. They only hold society back. What Europe so desperately needs now is a new generation of politically commit-ted people willing to dream of a better tomor-row and take the necessary steps to make their dream a reality.”

Alexander Stubb is a Member of the European Parliament and Professor at the College of Eu-rope.

Bibliography:

Presidency conclusions, Lisbon European Coun-cil, 23.-24.3.2000http://ue.eu.int/ueDocs/cms_Data/docs/press-Data/en/ec/00100-r1.en0.htm

Report from the High Level Group chaired by Wim Kok, 11/2004http://europa.eu.int/growthandjobs/group/in-dex_en.htm

Work programme for 2005, The European Com-mission, 26.1.2005

Strategic objectives 2005-2009, The European Commission, 26.1.2005

Communication to the Spring European Council “Working together for growth and jobs; a new start for the Lisbon Strategy”, The European Commission, 2.2.2005

How to put economic reform on the front burn-er – a business view, Cromme Gerhard, Chal-lenge Europe Online Journal (Issue 13), 1/2005

What Future for Europe’s Economic and Social Model?, Jeremy Rifkin, Challenge Europe Online Journal (Issue 13), 1/2005

Alexander Stubb


Since the Asunción Treaty was signed by Argentina, Brazil, Para-guay and Uruguay in 1991, marking the launch of South Ameri-

ca’s most successful regional integration process, the European Union has demonstrated its sup-port, and its firm wish to establish cooperation between the two regions.

Mercosul is a political and economic priority for the European Union, not only strategically, but also because of the close historical and cultural ties that unite both regions.

Today, almost a decade and a half after it was founded, it is clear that despite progress and set-backs, the Southern Common Market has ben-efited all of its members, and has contributed decisively to stability throughout the region. The process has proved its worth even in difficult conditions, such as the recent extreme economic and social problems endured by Argentina. The response was provided by a framework which also demonstrated the maturity of the region’s democracy. Although certain integration targets have been postponed, political leaders have demonstrated their commitment to a strong and united Mercosul at crucial moments, in a confi-dent and decisive way.

Europe’s aim of creating closer ties with Merco-sul was consolidated back in 1995, with the sign-ing of the Framework Cooperation Agreement between the European Community and Merco-sul. This opened the way to negotiations on a more ambitious agreement to create a genuine two-region association.

The aim of an association agreement is to strengthen the strategic partnership between the two regions in the fields of politics, economics and cooperation. For the European Union, this demonstrates its clear belief in the fundamental role that Mercosul can play in promoting growth,

prosperity and peace in South America.

First and foremost, the relationship between the two regions is a political one. It is based on deep historical and cultural ties that have created com-mon values and a shared view of the world. The European Union sees Mercosul as a natural part-ner for promoting democracy, rule of law and respect for human rights. But the relationship is also based on joint interests in trade, invest-ment and cooperation. The European Union is Mercosul’s leading commercial partner and the leading investor in the region. However, there is still plenty of room to strengthen these economic ties. Our hope is that the new agreement will lead to a significant increase in trade and invest-ment, and a more open and dynamic economic relationship.

The importance of this agreement, which will create the world’s largest free-trade area, was made evident once again at the most recent Mercosul-EU Business Forum (MEBF), held on 31 January 2005 in Luxembourg. At that meet-ing, the two regions’ business communities re-affirmed the crucial nature of the forthcoming agreement for boosting trade, investment and economic integration. The agreement’s potential was demonstrated by an MEBF study presented at the meeting: It showed that the opportuni-ties lost because of delays in trade liberalization between the two regions are estimated at about 100 million euros a year.

It is well known that Portugal would like to see the agreement sealed quickly, because it is de-cisive for consolidating relations between both blocs. In fact, the negotiations began during the Portuguese presidency of the European Union, in 2000. Last October, Portugal gave further proof of its commitment, when it hosted a meet-ing in Lisbon between European and Mercosul negotiators, which provided a new and favour-able footing for reaching an agreement. Portugal hopes that this will soon become reality.

Building Global Growth - Relations Between the European Union and Mercosul

By Mário David

Mário David


Future outlook – the need to strengthen dia-logue mechanisms

Although our shared values and our historical and cultural ties provide us with the basis for a joint approach to major world issues, the fact is that relations between the European Union and Mercosul have yet to attain a political scale commensurate with the strategic importance of its partnership. The European Union recognizes Mercosul as an ally in the establishment of an effective multilateral system and world order, as is expressly stated in the European Security Strategy. There is also dialogue between our in-stitutions on numerous subjects of mutual inter-est. But the relationship deserves to be more ambitious.

In addition, we have to be aware that our Mer-cosul partners increasingly feel that there is a certain lack of interest on our part.

The European Union is increasingly focused on becoming a global player. But if that aim is to advance beyond mere rhetoric, the EU must conduct regular high-level dialogue and cooper-ate effectively with the various regional partners who share its world view. In this framework, Mercosul is an essential partner for the Euro-pean Union. The possibilities for cooperation are countless, ranging from multilateralism to the fight against terrorism, drugs and organized crime, to sustainable development, the promo-tion of democracy and human rights, and all fields of scientific, economic and cultural coop-eration.

We cannot forget that Brazil is now, just like In-dia and China, a major regional leader, and it has become increasingly important on the interna-tional stage. Two recent facts have strengthened Brazil’s central position in the new international order. Firstly its role at the World Trade Organi-zation’s Cancún Summit, where it emerged as one of the leaders of the Group of 20, which also includes Argentina. That group played a central role in the outcome of the summit, and it has consolidated that role in subsequent WTO trade negotiations.

Brazil is also in a strong position to become a permanent member in any future reform of the United Nations’ Security Council.

Furthermore, in recent times Mercosul has opened up to the world by signing agreements with several regions, and also by expanding its associate membership. Now, in addition to Chile, Bolivia and Peru, it includes Venezuela, Colombia and Ecuador, so that it currently en-compasses every part of South America. Conse-quently, Mercosul can play a considerable role as a bridge, not only to Latin America, but also to other regions of the world, such as Africa.

We need to offer an urgent answer to that chal-lenge by instituting annual Summits between the European Union and Mercosul. By taking that step, we will place this fundamental stra-tegic partnership on the same level of regular political dialogue as we share with many other partners. If we examine the recent past, we will see that the European Union and Mercosul have only held three meetings between heads of state and government since 1999. With India, for ex-ample, the Union has been holding annual Sum-mits since 2000.

The European Union cannot afford to fail this opportunity to reinforce its role as a leading partner to Latin America.

Portugal’s role

Owing to the great sensitivity and knowledge Portugal has in its links to Brazil and the en-tire South American continent, Portugal – just like Spain – clearly has a special role to play in encouraging relations between the European Union and Mercosul. Portugal has been com-mitted – and will continue to be committed – to strengthening those ties. But this is not and cannot be seen as a Portuguese and Spanish venture. Their political, economic and cultural relations with the Mercosul states are an old and deep-rooted relationship that is sufficiently strong to stand alone. In addition, Portugal has its own forums for cooperation and dialogue with those states, whether bilaterally, or within the Iberian-American framework, or through the Commonwealth of Portuguese-Speaking Coun-tries.

So our motivation is not rooted in such inter-ests. Obviously, Portugal will play a fundamen-tal role in promoting and facilitating a deeper

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relationship between the European Union and Mercosul. But that relationship must be seen as being worthwhile for the Union as a whole; and this, as I have mentioned, involves a number of basic strategic factors that are essential if Europe is to take up its rightful position in the world.

Mário David is President of the Foreign Affairs Committee of the PSD and a Member of the Por-tuguese Parliament.

Mário David


In 1999, during the Kosovo war, when air raid, after air raid did not budge Yugoslav President Miloševic, the public at large in West-

ern European countries knew that once again something had NOT gone according to plan in the Balkans. Similar sentiments had befallen policy-planning units of foreign ministries in Western countries even earlier - not over Kos-ovo, but over the West’s Balkan policy through-out the 90s. Some criticised it as too reluctant, others as an outright disaster. The fact is that there were four wars between 1991 and 1999 in South Eastern Europe (SEE), with some of the worst atrocities in Europe since World War II. Against this background, wide consensus emerged that a paradigm shift was needed in the international approach to this region. These were the circumstances in which, in June 1999, the Stability Pact for South Eastern Europe was conceived at a conference, chaired by Germany, in Cologne. Germany held the rotating presi-dency of both the EU and G8, at that time. What was so new about this initiative compared to previous ones? It was a different approach, which for the first time saw a determination to multilaterally tackle a problematic region, which had a potential to set the European house on fire. As compared to earlier experiments of bi-lateralism in SEE (for example, Paris works with capital A in South East Europe, Berlin with capi-tal B, and London with capital C), the Stability Pact was specifically mandated with coordinat-ing all donor assistance to the Balkans. In practi-cal terms, this consists mainly of EU countries, the European Commission, the US, Switzerland, Norway, Canada and Japan, and international organisations such as OSCE, NATO, OECD, Council of Europe, as well as, International Financial Institutions (IFIs) such as EIB, World Bank, EBRD, Council of Europe Development Bank etc. In return, the SEE countries prom-

ised reforms and regional cooperation amongst each other. These two components were cor-nerstones of the “Stability-Pact deal” (SP) and have remained the core parts of the Stability Pact’s mandate and actions to this day. There-fore, improvements in regional cooperation are the yardstick by which the Stability Pact should be measured.

Based on experiences and best practices of for-eign assistance in Europe since World War II, the Stability Pact is a continuing “intergovern-mental conference” with a permanent secretar-iat based in Brussels. In my capacity of Special Co-ordinator, I head this office and chair the Stability Pact Regional Table. The Regional Ta-ble is the “general assembly” of all the Stability Pact participants, and its decision making body. It is driven by consensus, and - very importantly - the beneficiary countries of SEE participate on an equal footing with the donor countries and institutions.

It is truly a unique partnership. These “benefici-aries” include eight countries. To use EU jargon, they are the Western Balkan states (Albania, Bosnia-Herzegovina, Croatia, FYR Macedonia, Serbia and Montenegro, including Kosovo), the two future EU Member States (Bulgaria, Roma-nia) and Moldova, which is the only country not to have a confirmed perspective for EU mem-bership, but aspires, nonetheless, to join the EU at some date in the distant future. The SP is structured into three Working Ta-bles, roughly modelled after the three baskets of the Helsinki process of 1975, today known as the OSCE. The three tables deal with Hu-man Rights and Democracy, Economic De-velopment and Reconstruction, and Justice & Home Affairs and Military Security. The SP’s key objectives are to promote regional co-operation among the countries of SEE and expe-dite integration into European and trans-Atlantic institutions, namely the EU and NATO. We are not a development bank; rather, we are a unique

The Future of Economic Reconstruction, Development and Cooperation in South Eastern Europe

By Erhard Busek

Erhard Busek


political instrument that can act as catalyst for activities that facilitate and foster the transition process in the Balkans from a war-torn region to democratic, market based economies that are part of Europe.

In the eyes of the general public in SEE, how-ever, the Stability Pact is often associated with money - big money and never enough of it, of course! However, one crucial aspect that I must emphasise is that the Stability Pact does not have its own funds; it acts as a kind of clear-ing house for donors interested in stimulat-ing and encouraging regional co-operation. While this feature is sometimes criticised, it is also of huge advantage as it allows us to keep our structure lean and flexible. Our office re-mains small and focused. It has a staff of about 35, including administration. Our niche position, therefore, is to deliver “add-ed value”. Bringing projects and donors together and removing obstacles on a political level is a key asset or added value of the Pact. For exam-ple, for the Regional Energy Market, the Sta-bility Pact secured “political consensus among the countries of the region” and facilitated the necessary change of mindset from the illusion of energy self-sufficiency to the socio-economic benefits of cross-border co-operation.

In defence conversion, where NATO has ac-quired considerable expertise, the Stability Pact succeeded in soliciting funds from the World Bank to retrain several thousand redundant mil-itary officers in Romania and Bulgaria. Obvious-ly, integrating military personnel into a civilian workforce considerably reduces a security risk, as well as, providing much needed employ-ment. The point is that in normal operations, the World Bank and NATO do not meet; in the Stability Pact framework, they do.

Another example is the integrated border management process, initiated in Ohrid in May 2003. Borders in the Balkans are still perceived in mythical dimensions; wars were fought over borders! As Western Europeans we probably cannot properly fathom the symbolic significance, when Western Balkan governments started to talk about secure and open borders and agreed to the shift from military to civilian border guarding, as is the EU standard practice.

Again, the Stability Pact provided the platform to bring NATO, European Commission, OSCE and the countries concerned, together. Of particular note is the fact that Kosovo is fully participating in these activities. Regional ownership is another crucial aspect of the Stability Pact’s “method”. As we talk about sovereign countries with elected govern-ments and parliaments, any notion of neo-co-lonial implementation of reforms is out of the question. By putting the countries themselves in charge of the reforms, while ensuring access to technical assistance and funding, the accept-ance of necessary reforms is higher and more sustainable. Sometimes, this comes at a cost: it takes more time to operate this way, as small inexperienced administrations grapple with the implementation of complex reforms.

However, under our auspices, several regional initiatives are “headquartered” in the region, e.g. the organised crime and corruption fight-ing secretariats located in Bucharest and Sara-jevo. There is now a centre for the collections of small arms in Belgrade, while the seat of the international commission managing the Sava River will be in Zagreb along with a 20-nation strong Arms Control facility. The pre-condition for activities being launched within the Stability Pact framework is that they are of a regional nature and this was communi-cated to SEE governments right from the begin-ning. If we look back, it is correct to say that this was the stick ahead of the carrot. Reactions to this approach were mixed. Some governments bluntly explained that we could not expect them to design joint projects with neighbours they did not know or wish to know at that time. Today, I can say, that old scepticism is funda-mentally gone. Governments know that they have to either work together or they will fail to receive support. For example, the donors made it quite clear that necessary funding for elec-tricity rehabilitation is available, but only if the governments committed themselves to working together to liberalise their markets. It did the trick. Generally speaking, we have today a natural and normal “European” pattern of consultation amongst SEE governments. What was initiated

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as a condition by donors has proven to be sus-tainable through its own success!

What can we report after about five years of strong dedication to the economic development of the region? Real GDP growth in SEE has been quite strong and in the last three years it has ex-ceeded 4%, a rate quite faster than that recorded in Central Europe and the Baltic states, marking a good beginning for a long-awaited catching up. Growth has been driven by the expansion of the private sector, which now accounts for more than 60% of GDP, and by the expansion of trade opportunities following the liberalisa-tion of intra-regional trade and the improved ac-cess to EU markets. This performance, in turn, has been made possible thanks to a larger share of total credit going to the private sector and to a steady advance in the process of privatisation, particularly of large companies. Together with a significant improvement in the business climate, as witnessed by the in-depth analysis conducted by the World Bank and the EBRD, this has led to a growing inflow of foreign capital, both FDI and portfolio funds, which has reached a record level of over € 9 billion in 2003.

Despite these considerable achievements, SEE still faces a number of challenges and risks. As regards economic performance, the level of real GDP in SEE in 2003 was still at about 90% of the level prevailing in 1989, i.e. before the start of the transition process. This is a considera-ble progress compared with the level of 75% recorded in 1998, but it is still lagging behind the progress achieved in Central Europe and the Baltics, where real GDP in 2003 was at 123% of the 1989 level.

Such economic performance reflects a similar delay in the transition process, in general. On average, SEE countries are still at about 70-75% of the road to full transition, compared with around 90-95% in Central Europe.

Among the most significant aspects of the lag in transition are the high share of “informal ac-tivities” in the economy, which still represents about one-third of GDP, and the low level of financial intermediation. Moreover, there is still a lack a new ”greenfield” investment, as most of the FDI flows have been driven by large-scale privatisations, rather than by the creation

of new enterprises. Despite the strong trade liberalisation effort, significant non-tariff barri-ers continue to represent a major obstacle to intra-regional trade. Finally, regulation, taxation and corruption remain key constraints to the de-velopment of private sector enterprises, particu-larly SMEs, which can have a significant impact on the creation of new jobs.

On the strength of the progress achieved to date, SEE is now firmly on the radar screens of foreign investors and international capital markets. A window of opportunity has opened up for SEE, as capital flows are increasingly be-ing reallocated away from regions perceived as riskier, such as Latin America, towards Eastern Europe, which is perceived as more stable be-cause of its linkages to the EU and the support of dedicated financial institutions, such as the EIB and the EBRD.

But being on the radar screens of the investors does not guarantee actual investment. It merely improves your potential for investment leading to greater attention to, and closer screening of, political and economic developments with a view to making a comprehensive assessment of the risks and returns involved.

At present, mostly because of the political un-certainties still prevailing throughout the region, the assessment of markets is generally one of “wait and see”. This may be unfair to individual countries of the region where political stability has been achieved and the reform process is well established, but in the context of globalisa-tion of trade and investment flows, it should not be surprising that the creditworthiness of the region is regarded as more important than the standing of individual countries. International investors respect and can operate within exist-ing political and institutional realities, but they increasingly require integrated markets, free from trade and foreign exchange restrictions, with reasonable regulatory frameworks and reli-able legal systems. In the pursuit of these objec-tives, the countries of the region can count on the support and the assistance of the Stability Pact.

Erhard Busek


Regional infrastructure

In the first few years of our work, support for infrastructure has been one of the most impor-tant contributions of the SP to the stabilisation of the region. Under SP auspices, the international community has shown genuine commitment to rehabilitate and modernise the infrastructure in the SEE.

A joint office was set up in Brussels by the World Bank and the European Commission with its main task the preparation of list of priority infrastructure projects of regional significance to submit to international donors. For example, a first set of so-called “Quick-Start” infrastructure projects was submitted to multilateral donors at the Regional Funding Conference held in Brus-sels in March 2000 when € 1.1 billion was raised for projects consisting mostly of transport, en-ergy, telecommunications and water supply or sanitation projects. A new list of regional infra-structure projects was submitted to a second Re-gional Conference held in Bucharest in October 2001 when € 2.4 billion was pledged.

As could be expected, the combined list of projects resulting from the two regional Con-ferences has been subject to some amend-ments. For various reasons, a few projects were dropped from the list, for instance, because the countries concerned decided to finance them without the involvement of the IFIs.

Currently, the list comprises some 45 projects, with a total cost of € 3.96 billion. These projects have financing secured or under way, with the involvement of bilateral donors or international financial institutions. They were selected ac-cording to agreed criteria, namely technical feasibility, economic and environmental viabil-ity, submission by one or more countries and a marked regional character.

Some disappointment has been voiced regard-ing the relatively slow progress of the projects, for which financing was pledged at the Brus-sels and Bucharest Conferences. On this mat-ter, realism is called for. Experience shows that, even under the best circumstances, the time pe-riod required for a major infrastructure project to pass through all the processing stages (the so-called “project cycle”) before the project is

approved by the Board of Directors of the IFI concerned, the loan is signed, the international tendering process completed and construction can begin, involves, most of the time, several years. The slow progress is, however, also due to a number of difficulties, which are generally outside of the control of the IFIs. Let me give you a few examples:

• Six of the road projects are in Albania: the reasons for the lack of implementation or the slow implementation of these projects are mainly land acquisition difficulties or weak institutional capacity in the ministries concerned. However, recent progress could help to speed up the process of implemen-tation.

• In FYR Macedonia, the commencement of two road projects was delayed, mainly due to reluctance on the part of the authorities to accept technical standards suggested by the IFIs and the implications of an Environmen-tal Impact Assessment.

Stability Pact support for infrastructure in SEE has moved from the convening of pledging con-ferences and the monitoring of a project list to a more strategic approach of sectoral priorities at the regional level. The key principle is that future selected projects have to contribute and be part of a strategic approach to develop infra-structure networks of regional importance.

The first move in that direction was the decision at the meeting in May 2001 in Tirana to establish the Infrastructure Steering Group (ISG) chaired by the European Commission and consisting of representatives from the EIB, the EBRD, the World Bank, the Council of Europe Develop-ment Bank and the Stability Pact. I must note that SEE is the only region in the world where the IFIs have a framework within which they can agree on priorities and co-ordinate financ-ing, thereby reducing duplication and playing to comparative strengths.

It has been recognised that efficient planning of public investment in the transport sector neces-sitates the development of four main building blocks: a) the establishment of a Core Regional Transport Network as a jointly agreed reference for planning investment of regional relevance, b) a process to prioritise investments of regional

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importance and which are financially afford-able and suitable for international financing, c) a commitment to policy reforms, notably to improve sector management and address cross border issues, and d) the establishment of an institutional framework to coordinate efficiently among the countries of the region. The signing of the Memorandum of Understanding on the Core Transport Network in June 2004 now pro-vides the appropriate framework for the imple-mentation of a regional approach in this vital sector.

Creation of a regional energy market

Creating a Regional Energy Market in South Eastern Europe, which will soon be upgraded to the Energy Community of SEE (ECSEE), is an ex-ample of how the region can become fully inte-grated into the EU in one sector despite the fact the countries are not yet EU Member States.

Initialling of the ECSEE Treaty in April by the ministers from the region paves the way for a progressive creation of an integrated European Union standard market for energy supply and demand in SEE. Improving the balance between energy supply and demand is crucial to improve and sustain economic development in SEE. This, undoubtedly, requires a strong commitment by the countries of the region towards market ori-ented reforms, regional integration and sustain-able development.

The advantages of ECSEE are enormous: im-proved utilisation of existing supply and pro-duction capacities and fostering more coopera-tion and integration in the region (which would result in economic growth, stability and in-vestment, including optimising investment pri-orities). The countries face common problems, such as the lack of money in the energy system and the major need for investment. Individual markets are too small to support major new in-vestments and, without the regional perspective, the alternative could be stagnation. The regula-tory frameworks in the region are still young but, can progress rapidly to the type of regional cooperation needed. Another element in favour of this initiative is the wealth of technical talent in the region.

However, ECSEE entails many transition chal-

lenges for the countries of the region and progress will not be painless, as we need to pay special attention to the socio-economic impact of this treaty. For example, the effect that tariff rates will have on vulnerable social groups. We, also, need to prepare and implement suitable la-bour and retraining policies as part of the proc-ess of restructuring utilities and energy related companies, while not neglecting environmental protection standards.

Fostering regional trade

The Stability Pact’s Trade Working Group has been specifically instructed to develop and subsequently monitor the implementation of measures to liberalise trade regimes in SEE. Be-ing part of the Stability Pact’s overriding goal to stimulate sustainable economic development in the region, the Trade Working Group’s key achievement to date has been the creation of a system of bilateral free trade agreements (FTA) among the SEE countries that substantially liber-alise trade in the region.

We are already seeing positive results from those FTAs that have been in force for a while. For example, in the case of Albania, I am delighted that when comparing trade figures for the first 6 months of 2003, when two FTAs were in force, with figures for the first 6 months of 2004 when 7 FTAs were in force, we see a tripling of over-all exports to other SEE countries. We expect even more positive results in 2005, as the whole package of FTAs will be in force. The Working Group is now actively looking at a programme to reduce and eliminate non-tariff barriers to trade, which are very prevalent in the region. The Group is also examining the possibility of moving from a network of bilateral FTAs to one single FTA – and thereby creating a genuine free trade area in SEE.

Private investment

But all this would not be possible without a considerable input from private investments. The business community is actively involved in the region both through direct investment and through providing assistance to the govern-ments. The quality, scope and structure of dia-logue between governments and the business community – both domestic and international

Erhard Busek


- are vital components in improving the envi-ronment. Through the Investment Compact, our joint undertaking with the OECD, the business community can make a meaningful contribu-tion to the ongoing political debates. Through the Investment Compact’s network of Foreign Investors Councils, which are active in SEE, the Business Advisory Council for SEE, the BIAC and others we are able to conduct a construc-tive dialogue with the ministers and officials of SEE – something we need to continue to strengthen and intensify as we need to consider the fact that we are getting closer to the end of privatisation in SEE and that we have to redou-ble our efforts to attract greenfield investment to the region. Given the immense competition for investment worldwide, a decision to cooperate on a regional basis to improve the environment and promote investment is critical.

But one has to note the catalytic role of the In-vestment Compact in stimulating reform and its vital role in monitoring and supporting the implementation process. The region is today well and truly consolidating political and eco-nomic stability and this achievement should be acknowledged.

Five years on…

The SP was 5 years old in June 2004, but as we celebrated the 5th anniversary of our creation, unfortunate events in Kosovo (17 March 2004) reminded us of how fragile the situation can be. While it appeared, on the surface, that the situ-ation was improving, days of protests took us all, again, by surprise. To be blunt, the events in Kosovo last year reminded us that the war in Kosovo was fought only five years ago. Thirty-one dead and more than 500 wounded was a strong reminder that our focus needs to be on the region constantly.

Moreover, I would like to emphasise my strong belief that the European Union cannot afford to lose sight of the Balkans. I believe it has the responsibility to keep it permanently on its po-litical agenda. Not just because it needs to react to the insistent knocking of these countries, but also because it is a historic opportunity to finally get the Balkans “right”.

While political and public discourse cannot avoid making references to the idea of “EU

membership”, there is a consensus among poli-cy-makers that the first and most important pri-ority in the Balkans is stabilisation, in order to lead to economic development.

Ever since its creation, the Stability Pact has been pushing for growth and stability in this region. We coordinate the work of over sixty participating international organisations and governments, and I can’t emphasise enough the importance of the Trans-Atlantic connection and the extremely important role of the US.

The SP has been given a clear mandate of being complementary to the Stabilisation and Associa-tion Process. To put it differently, we have been instructed by the EU leaders to help countries of the region meet the Copenhagen EU member-ship criteria. But in my regular travels to SEE I have detected a worrying trend of great misun-derstandings about what the EU stands for and how it functions. Perhaps we could consider that it is also part of our responsibility to help these countries to have informed debates and start managing expectations. Let me give you two arguments:

1. I often get the impression that these countries do not fully understand that the adoption – and implementation – of the 100,000 pages of the acquis communautaire will not lead automati-cally to Western European levels of prosperity.

2. Another problem is that the countries knock-ing on EU’s door usually perceive EU mem-bership as a key to a treasure box, structural funds upon cohesion funds upon money for every purpose. However, EU membership is expensive and requires advanced administrative capacities; this is already becoming known to some countries of the Western Balkans. Just to give a few examples.

• The Commission’s CARDS funding is avail-able, but the region’s governments lack the necessary capacity to exploit the full poten-tial of the funding opportunities;

• Also, as we know from our Infrastructure Steering group, the countries have limited ability to implement viable infrastructure projects;

Having said that, I must also reiterate that I strongly believe there will soon be tangible

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economic benefits from our work in the past five years stabilising and developing this region. While living standards in the Western Balkans are still below the 1991 average, a close look at the economic data shows great progress. More-over, I am confident that the countries of the region will find wisdom and concentrate, not on political quarrelling but, rather on pushing the necessary but often painful economic reforms, however unpopular or politically damaging they may be.

Erhard Busek is the Special Coordinator of the Stability Pact for South Eastern Europe.

Erhard Busek


Europe in general is lacking growth, com-petitiveness and eco-nomic dynamics - not only compared with the United States, but with

China, India and South-East Asia. Globalization is a challenge, but together with EU enlarge-ment it opens enormous opportunities for fur-ther development of the European community.

Enlargement essential for “old” EU members

2004 was a very important year for the Euro-pean Union and especially for the European economy. Enlargement will have a more posi-tive effect on the old members of the European Union than it does to the newcomers. The new members have developed a very strong entre-preneurial spirit, most likely because of their relatively smaller and more competitive econo-mies. The way to enlargement has required 15 years of structural reforms in the ten new mem-ber countries to shape the future of their econo-mies – a process many of the “old” EU members still have ahead of them.

Europe’s model based on growth and economic performance

The most urgent issue facing Europe today is clearly the lack of growth. Strong economic performance and dynamic growth is the cor-nerstone on which the European model of so-cial solidarity and sustainability was built on. A sound macroeconomic framework is essential to the health of the European economy. Only by a strict compliance to the rules of the Stability and Growth Pact it will ensure stability and growth. To weaken the Stability and Growth Pact would give a wrong signal to the new Members States of the European Union who had to fulfill strict economic criteria to enter the Union. Moreover, we face huge intrinsic debts of the European social security system due to the rapid demo-

graphic change of our society and the inca-pability to finance the increasing health and pension costs with a steadily diminishing work force. The European social model can only be financed in the future if at all levels and at each age Europeans work longer hours, start work earlier in life and finish later. It is very simple to summarize: A higher deficit today means higher taxes tomorrow.

The top priority today is to restore sustainable dynamic growth in Europe in accordance with the Lisbon Strategy. In March 2000, the Lisbon European Council set strategic goals for the coming decade to create the most competitive, knowledge-based economy in the world. The core of the Strategy is job creation, enduring economic growth and greater social cohesion. These goals, which the Small and Medium Entre-preneurs Union of the European People’s Party has supported from its inception, were set in order to guarantee Europe’s success in the age of globalization and to restore the conditions of full employment in the European Union. This is vital to Europe’s position in the world and Europe’s ability to mobilize resources so as to tackle many different global challenges.

Competition between regions and institutions

A globally competitive Europe is only possible if we generate more competition within Europe. EU Member States have not used enough the potential economic dynamism that could arise from competition among the different regions in the Member States. Decentralized decision-mak-ing and the gradual transfer of appropriate re-sources to the regional and local authorities can contribute to a more effective implementation of the Lisbon Strategy, enabling the local and regional authorities to develop their own policy strategies through competition; for example au-tonomous tax policies, regulation policies and public services.

Entrepreneurs in Europe: A Vision of Prosperity

By Peter Jungen

Peter Jungen


More focus on entrepreneurs

We have to support SMEs in their efforts to in-ternationalize and make the most from the op-portunities our economy provides. Constructive measures have been initiated including: entre-preneurship awareness programs, the promo-tion of entrepreneurship in social sectors, ena-bling micro-enterprises to recruit by reducing the complexity of regulations, facilitating SMEs’ access to public markets by reducing costs and efforts to start businesses and reinforcing the culture of entrepreneurship in Europe through facilitating start-ups’ access to finance.

An enlarged competitive European Union needs SMEs that are encouraged and supported tocompete and open up to free trade with the rest of the world. More than ten years have passed and the Internal Market has not materialized, leaving economic growth untapped and creat-ing unnecessary costs for firms and consumers. In order to promote the Lisbon goals, it is nec-essary to have the European economic policy fitted to SME requirements. Access to finance, especially for SMEs, is crucial through all stages of development. We have to initiate activities that improve the conditions for entrepreneurs and SMEs and encourage national governments to follow suit.

EU politics must focus much more on entrepre-neurs. As entrepreneurs are crucial for trans-forming innovation into growth and growth into job creation, EU politics have to be much more in line with their needs. The appointment of a special SME-envoy within DG Enterprise has proven that the EU Commission understands the important role of entrepreneurs and SMEs. The launching of the Commission’s action plan: The European Agenda for Entrepreneurship and the 5-Year Plan for Prosperity, Solidarity and Secu-rity in Europe, were also productive steps in the right direction.

More result-oriented agenda

No government, no politician, no trade union, no parliament nor the European Commission has ever created a single job which covers its costs in a competitive environment. Employ-

ment is only managed by entrepreneurs. The President of the European Commission, José-Manuel Barroso, wants to re-invigorate the Lis-bon implementation strategy to follow a more results-oriented path by 2010. The Small and Medium Entrepreneurs Union of the EPP, there-fore, supports the lately unveiled 5-year plan in which the Commission highlights its vision for prosperity in Europe and points out that the priorities of the plan re-structuring the Lisbon Strategy should focus on fewer topics; In par-ticular, on:

• Innovation and research: They are critical to economic dynamism, growth and job cre-ation. The Union needs to stimulate these goals by pursuing policies to catalyze inno-vation and entrepreneurship and by com-plementing Member State actions. A climate of innovation needs to be fostered, which goes even beyond technological innovation, to embrace also new ways forward in ar-eas like distribution, marketing and design. A new generation of research programmes will propose changes to narrow the gap be-tween Europe’s research effort and its major competitors. The EU budget should make a greater contribution to the agreed goal of 3% of GDP devoted to research. Research programs have to focus on areas where the EU can offer real added value.

• Entrepreneurship: EU politics has to con-centrate more on entrepreneurs, since it is they, who transform innovation into growth and create new jobs. Spending on research does not automatically lead to economic growth. Only entrepreneurs create innova-tion. Thus, innovation turns invention into economic value and growth, which is essen-tial in creating new jobs.

• European business environment: The business environment needs to be more en-couraging to companies wishing to seek out new opportunities. A properly functioning Internal Market is an essential prerequisite to growth and competitiveness. A fast imple-mentation of the Services Directive, which needs to lead to a fast completion of the single market, and a business-friendly ap-proach to the proposed new chemical direc-tive REACH are essential, in this respect. The

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recent World Bank Study “Doing Business in 2004: Understanding Regulation”1 shows that a lot needs to be done to encourage entrepreneurs, in particular start-up compa-nies. Some of the new EU Member States, e.g. Slovak Republic, are doing much better than most of the “old” EU 15.

• Stability and Growth Pact: A sound mac-roeconomic framework is essential to the health of an economy. We strongly be-lieve that only a strict Stability and Growth Pact will help to ensure stability through a strong commitment to the rules governing the Pact. Softening the Stability and Growth Pact would give a negative message to the new Members States of the European Union, who had to fulfill strict economic criteria to enter the Union. On the other hand, we all see a huge wave of new debts on the hori-zon, looking at our ageing society and the incapability of a diminishing work force to finance the increasing health and pension costs. If we don’t prevent the deficits, taxes will rise.

• Infrastructure and energy: The costs of poor infrastructure and energy of the Euro-pean economy are huge. The Trans-Euro-pean Network needs to build on the Growth Initiative by ensuring that significant extra resources are matched by new measures to make the networks operational and more coordinated. More transparency and compe-tition in the energy market would also help to ensure better security of energy supply.

Lisbon needs highest priority

The implementation of the Lisbon Agenda is the highest priority of President Barroso, demon-strated by the following facts and very much welcomed by the Small and Medium Entrepre-neurs Union of the EPP:

• The President personally chairs the 33-mem-ber “Lisbon Agenda Group” made up of Members of the European Parliament.

• The creation of a Vice-Presidential position that ensures a coherent Commission ap-proach to the Competitiveness Council.

• President Barroso has created a new Com-mission post specifically assigned with Com-

petitiveness in Europe.• By choosing his team, President Barroso

created the Commission comprising of more trained economists than ever before in any Commission, a decision which gives hope to European entrepreneurs.

• The appointment of a special SME-envoy within DG Enterprise has proven that the Commission understands the important role of entrepreneurs and SMEs. The launching of its “Action Plan: The European Agenda for Entrepreneurship” in 2004 and its regular follow-up activities was another step in the right direction.

Tax competition proven very successful

More than 20 years ago, Margaret Thatcher and Ronald Reagan triggered a worldwide revolu-tion by dramatically slashing marginal income tax rates. The so-called “Reagan Revolution” set the basis for a fast growing and solid US econ-omy for the following decades. In addition to rejuvenating the UK and US economies, these supply-side tax cuts prodded other nations into implementing similar reforms. Thanks to “tax competition” between nations, average top tax rates in developed nations are nearly 20 points lower today than they were in the 1970s.

New tax competition – a chance for Europe

A new wave of tax competition is sweeping Eu-rope, one that could yield impressive results for the global economy. It was Ireland, for instance, that resisted EU pressure for tax harmonization and enacted a 12.5% corporate-tax rate. This dramatic reform, accompanied by reductions in tax burdens on personal income and capital gains, has turned the “sick man of Europe” into the “Celtic tiger.” Moreover, these reforms have prompted corporate tax rate reductions in many other European nations. A revolutionary reform was undertaken by the Slovak government, un-der Finance Minister Ivan Miklos, introducing a flat tax of 19% including income tax. This move forced its neighbour country Austria to its big-gest tax reform since the war by reducing the corporate tax level from 34 to 25%. Hungary, as

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1 See http://rru.worldbank.org/DoingBusiness


well, cut its corporate tax rate to 16% from 18% and dropped the top tax rate on personal in-come to 38% from 41.5%. Latvia, meanwhile, cut its tax rate on business income to 19%, and Ro-mania has announced that its corporate tax rate has dropped from 25% to 20%. One of the most interesting tax-rate reductions is taking place in Estonia, which has enacted legislation to lower its flat tax rate from 26% to 20% by 2007.

The new wave of tax competition leads to low-er tax rates and simplified tax systems, a result which could never be achieved through tax harmonization. It creates more social justice as more simple taxation structures allow less ex-emptions and loop-holes and are, therefore, so-cially more accepted tax systems. This goes in particular for a flat rate income tax. The recent experience in a number of Central and Eastern European countries proves easily that the effect of tax competition leads to a more competitive European Union economy.

Tax competition between Member States and even between regions is useful in order to con-tend for the “best practice” in this area. The attempt to harmonize direct taxes could have destructive effects on business activities, and therefore on growth and employment, as well. Hence, all Member States should oppose it.

Competition for savings & shift towards in-direct taxation

Other recent global financial phenomena are the worldwide competition for international in-vestment savings - a competition for the world-wide capital. A shift from direct taxation (capital and labor) to indirect taxation (consumption) is another “must” to finance our social model.

Creating a knowledge-based economy

Only entrepreneurs can provide cutting-edge innovation that transforms knowledge-based in-vention into economic value and growth. If we want to compete with other regions in the world like China, India, and the United States, Europe must be a knowledge-based society armed with high levels of education and training. Participa-tion of all citizens in the knowledge-based so-ciety ought to be the objective that underpins our efforts.

Topic of the year: Education to Entrepre-neurship

The Small and Medium Entrepreneurs Union of the European People’s Party is calling for im-proved access to high-level training and further training must be fine tuned to better meet la-bor market demands. This is why the board of the Small and Medium Entrepreneurs Union of the European People’s Party decided to choose “Education to Entrepreneurship” as its topic of the year for 2005.

Many bureaucratic obstacles, such as enormous-ly complex social security systems, must be minimized to encourage flexibility and mobility. This also applies to the mutual recognition of academic certificates. With respect to the goal of improving education and training, research and development must be a priority. The conditions for public and private funding for research and development must be stepped up to achieve the modest target of 3% of GDP. Public and Private funding of R&D should be allocated in the spirit of achieving a knowledge-based society with a strong ethos of entrepreneurship.

Hand-in-hand with education to entrepreneur-ship goes the promotion of a better understand-ing of business failure in Europe, distinguishing between honest and dishonest bankruptcies in order to tackle the stigma of failure.

Improving the role of women as entrepreneurs, teaching them how to run a company in order to close the gender gap in European employ-ment and boosting start-up rates is crucial for the economic future of our continent.

Entrepreneurs are the change agents!

EU politics have to focus much more on en-trepreneurs, since it is they who transform in-novation into growth and create new jobs. Spending on research does not automatically lead to economic growth. Therefore, we need entrepreneurs in order to generate innovation. Thus innovation turns invention into economic value and growth, which is essential in order to create jobs.

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National roadmaps to prosperity

Joining efforts with the European policy mak-ers, the politicians and national governments have to do their homework and have to make sure that they do not burden the local economy with EU red tape. The EU Commission and the Council have to better commit individual Mem-ber States to the commonly agreed goals. These targets should be included in “national road-maps”, containing steps and decisions needed and providing a time frame.

Closing the gap

Only if all stakeholders involved – the Euro-pean Commission, the European Parliament, the Council and especially the national govern-ments – understand the priority, and the new focus of the Lisbon goal on growth, can Europe succeed. The Lisbon target for the year 2010 is far out of reach. Europe has to focus all its forc-es in order to keep up within the world leading economies. The question is not if Europe will be the most competitive and dynamic knowledge-based economy in the world by 2010, but rather how to prevent the widening of the gap, even further, with these other dynamic economies of the world . A new entrepreneurship culture

There is definitely no lack of work in Europe. There is a lack of employers, a lack of entrepre-neurs and therefore a lack of innovation and economic dynamism which leads to the under-performance of growth and employment. To solve this problem we need at least 5 million new entrepreneurs in Europe. The key is a new entrepreneurship culture!

Peter Jungen is Co-Chairman of the Social and Economic Policy Committee of the EPP and Co-President of the EPP SME Union.

Peter Jungen


This article deals with the Lisbon Process. The process is a consequence of the treaties of Maas-tricht and Amsterdam. In Maastricht the mac-

ro economic guideline became a central instru-ment for economic policy, because of the Mon-etary Union, that was written into the Maastricht Treaty. In Amsterdam it was decided to add the employment chapter to the Treaty. In order to implement this chapter the so-called Luxemburg process was set up. The Luxemburg process was the first open coordination system. It deals with employment. Many other such systems have been established since the European Union.

In March 2000 the Lisbon special European Council accepted a very important declaration. It was called, “Towards a Europe of Innovation and Knowledge.” This declaration started the so-called Lisbon process. The aim of the Lisbon special European Council was to “invigorate the community policies against the backdrop of the most promising economic climate, for a genera-tion in the Member States”. There were two new developments in Europe according to the dec-laration:

• globalisation and• the growing importance of ICTs (informa-

tion and communication technologies).

The declaration sees both developments in a rosy light. It was held in the middle of an eco-nomic boom. It was, also, before the crash in the stock markets and before 9-11. Those two events showed that there was a darker side to ICTs and globalisation, which had not been tak-en into account by the Lisbon summitteers. The Lisbon summit set itself a new strategic goal for the next decade: To become the most comp-etative and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion.

The method to improve the goal was twofold:

• To improve the existing processes of coop-eration in the economic, financial and em-ployment area.

• To implement a new open method of coor-dination with timetables, guidelines, indica-tors and monitoring.

The Lisbon process has since run its course. The only later addition to the Lisbon declaration was about the method to be used to implement Lis-bon. The different processes which fell under the Lisbon umbrella (Macro economic policy guidelines and the Luxemburg, Cardiff and Co-logne process) have been streamlined in 2002, so that heads of government can decide, during the spring European Council, about the results of the annual broad economic and employment policy coordination cycles.

The preparation of the former cycle takes place in the ECOFIN Council and the latter in the EM-PLOYMENT Council. Between the two councils there exists a loose cooperation. In this new framework the formerly existing processes have been integrated. It means that the Lisbon Strate-gy has become the instrument to integrate social and economic policy in the European Union.

Lack of tools - too many limitations

However, the process has its limitations. First-ly, the Lisbon process cannot depart from the principle of subsidiarity. Secondly, even where the European Union has a responsibility under the treaty that responsibility differs from area to area. It makes a lot of difference whether we are talking about the internal market, the macro economic guidelines or the employment guide-lines. Also there is a very big practical difference between Member States in the Euro zone and those who do not yet participate in this arrange-ment. In the Euro zone there is more necessity to coordinate economic and, consequently, so-

The Lisbon Process - Impossible Dream?

By Bartho Pronk

Bartho Pronk


cial policy. The Lisbon Strategy tries to do eve-rything at the same time. Also the targets of the Lisbon Strategy are not well defined. The targets are:

• Competitiveness;• Dynamic economy;• Knowledge society;• More and better employment;• Social cohesion;• Sustainability.

It is, by the nature of things, very difficult to achieve all targets at the same time. At the na-tional level many different ministries with their own competences deal with the targets. The Lisbon Strategy creates, consequently, a compli-cated matrix in which the Commission, different European Councils, and national ministries are the main actors.

There is also an important role in the process for the European Parliament and the social part-ners. The ECB and the EIB are linked to the process, as well. In short, all the great and the good in the European Union participate in the Lisbon Process. The Commission plays the key role because it is the only institution which has the knowledge and the contacts to prepare the conclusions of the European Council.

To the innocent outsider it looks as if the Euro-pean Council is solely responsible. This impres-sion is definitively wrong. Without the Coun-cil the process would not have started, but the Council is by nature more interested in political than in economic problems. That means that the process is quite autonomous and the Coun-cil gets interested only when the economy or the employment situation becomes a political problem. This is not always the case. Therefore, there is the big danger that the whole process becomes a tremendous bureaucratic exercise, because the political responsibility will be less involved.

In spite of this criticism it must be recognized that at the moment, the Lisbon process is the only coordinating process in the European con-text. It produces data, which is of great impor-tance for all the decisions about the European economy.

Quest for the Holy Grail

It is very difficult to find out if the Council of Lisbon laid down verifiable criteria in the Lis-bon declaration so that it is possible to verify whether the implementation of it is successful or not. If the criteria are unknown, it is impossi-ble to determine whether the results are good or bad. It seems the Council had as their main aim to improve the situation and was of the opinion that more coordinaton would realize that aim more rapidly. Therefore, it is almost impossible to make an objective assessment of Lisbon.

The objectives are relatively clear in some areas like employment and relatively obscure in other areas like sustainable development. Therefore, achieving Lisbon looks somewhat like the quest for the Holy Grail and an almost impossible dream.

Clearly the Lisbon Council made a mistake in expecting a higher growth than that was real-ized in the years after and before 2000. The ex-pected growth was 3% and more. In reality, only in 2000 was growth higher than 3%. In 1998 and 1999 the growth rate was 2.9%. The aver-age growth over the whole period was 2.16%. This difference between 2.16 and 3% explains the fact that the employment situation did not improve as much as was expected or hoped for (see Annex I).

If we look at unemployment, the situation in the European Union has improved considerably. If one compares 1993 with 2004, unemployment decreased 2.0%, from 10.1 to 8.1% (see Annex II). There are considerable differences between the Member States. Only one of the 15 old Mem-ber States has now an unemployment rate over 10%. In 1993 there were 6 Member States with an unemployment rate of 10% or more. In some countries, the unemployment has decreased quite considerably.

The decrease, for instance, in Ireland was more than 10%, in Spain it was almost 8% and in Fin-land it was 7.5%. In the new Member States there are many challenges ahead. There are three new countries with more than 10% unem-ployment (Poland, Slovakia and Lithuania).

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The unemployment in the USA decreased be-tween 1994 and 2004 from 6.1% to 5.5%. This is a smaller reduction than that in the Euro-pean Union. However, unemployment remains higher in the European Union than in the USA, even though more and more individual coun-tries have a comparable unemployment rate to that of the USA. Therefore, I think that it could be possible to achieve a comparable unemploy-ment rate in the long term between the EU and the USA.

Germany is the only member state that had a lower unemployment rate in 1994 than in 2004. It is also the biggest economy of the European Union. This has had a negative impact on the scores of the European Union. But in spite of this, more progress has been made by the Euro-pean Union than by the United States.

Not so weak after all?

Competitiveness is very important for the Eu-ropean Union. It is one of the main targets of Lisbon. It is not always clear how competitive-ness is defined. Sometimes it is suggested that the European Union is not competitive because unemployment is so high; this is not necessarily correct.

A country can be competitive and still have high unemployment. Also, the opposite is possible. Being more competitive is always necessary. Even a market leader always has to be aware of the danger that competitors may overtake him. It is important to make a realistic analysis about the present level of competitiveness with clear criteria. It is very dangerous to be too optimistic in this field. But that is certainly not the case in the European Union.

The tone in the European Union is very gloomy. Improvements in competitiveness are never mentioned; always more has to be done. Fig-ures are often presented in such a way that Eu-rope looks inferior to others. The consequence of this pessimism is that people lose heart and also lose confidence in the European and na-tional institutions, which are responsible for so-cial and economic policy. It can even lead to blind resistance against necessary measures

to stimulate economic change or reform of the labour market. Therefore, it is important not to forget why there is a Lisbon process.

It is to give our citizens a better life, with more employment possibilities. If citizens do not believe that, the whole exercise will fail. That would be disastrous in a time of big democratic change, and many challenges that lay ahead.

Ageing Europe and productivity

The importance of demographic change cannot be overestimated. Some people tend to focus worries on their pension and their health system. Those are important factors. But more important is that our whole society is going to change. If we do not deal with that change, employment and productivity will suffer. Fortunately, figures show that the average exit age from the labour force is increasing from 59.9 years to 61.0 years in the European Union (see Annex III).

Productivity is increased by two factors; tech-nological improvement and increases in the working population. Part of our productivity im-provement, therefore, is a consequence of the growing working population. This means that Europe’s productivity will grow less than that of competitors by the sole fact that our working population is growing less.

The only way to compensate for that is to fo-cus more on the other factor of productivity im-provement, namely technology improvement. This will mean more investment in learning, also for older workers. It is probable that big skill shortages will arise. This will not limit itself to doctors and nurses, but will exist in many more sectors. It is absolutely urgent to put all the data together and make policy decisions about how to cope with demographic change in the next 10 years.

Also the question of immigration has to be tak-en into account. Immigration cannot solve the problems of demographic change in Europe. However, an intelligent system of work permits will help to maintain Europe’s productivity in future years. Opening up our university system to students and professors from abroad

Bartho Pronk


may also help in this respect. It seems strange to look at these new proposals in a time of high unemployment. But it is absolutely necessary if we look to the demographic changes expected in the next 10 years.

We then see that the number of people retiring will be greater than the number of people enter-ing the labour market. In the first few years of this process, change will be very slow because people will start retiring later but there will still be a lot of unemployed, among which many young people; there is then, still, a hidden la-bour reserve. But when the reserve is depleted, the process will suddenly accelerate, and the whole labour market will change.

Employers will not be able to find new work-ers with the right qualifications. SMEs will have to close because there will be no successors to take them over. New SMEs will not be founded because people prefer to accept a good job of-fer in an existing company. In short, the econo-my will stagnate. It is possible to avoid this, but only when we take the human factor more into consideration than was the case in the past. Pos-sibly this is the greatest challenge for the Lisbon process in the future.

Bartho Pronk is a former Member of the Europe-an Parliament and Co-Chairman of the Social and Economic Policy Committee of the EPP.

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ANNEX I

Source : Eurosignal TOTAL EMPLOYMENT RATE %

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

EU (25 countries) : : : : : 60.6 61.2 61.9 62.4 62.8 62.9 63

EU (15 countries) 61.2 60.1 59.8 60.1 60.3 60.7 61.4 62.5 63.4 64.1 64.3 64.4

Euro-zone 59.5 58.3 57.9 58.1 58.2 58.6 59.3 60.5 61.6 62.1 62.4 62.6

Euro-zone (12 countries) 59.3 58.2 57.8 58 58.1 58.4 59.2 60.3 61.4 62.1 62.4 62.6

Belgium 56.3 55.8 55.7 56.1 56.2 56.8 57.4 59.3 60.5 59.9 59.9 59.6

Czech Republic : : : : : : 67.3 65.6 65 65 65.4 64.7

Denmark 73.7 72.1 72.3 73.4 73.8 74.9 75.1 76 76.3 76.2 75.9 75.1

Germany 66.4 65.1 64.7 64.6 64.1 63.7 63.9 65.2 65.6 65.8 65.4 65.1

Estonia : : : : : : 64.6 61.5 60.4 61 62 62.9

Greece 53.7 53.7 54.2 54.7 55 55.1 55.5 55.3 55.7 55.4 56.7 57.8

Spain 49 46.6 46.1 46.9 47.9 49.4 51.2 53.7 56.2 57.7 58.4 59.7

France 59.9 59.3 59.1 59.5 59.5 59.6 60.2 60.9 62.1 62.8 63 63.2

Ireland 51.2 51.7 53 54.4 55.4 57.6 60.6 63.3 65.2 65.8 65.6 65.4

Italy : 52.3 51.4 51 51.2 51.3 52 52.7 53.7 54.8 55.5 56.1

Cyprus : : : : : : : : 65.7 67.8 68.6 69.2

Latvia : : : : : : 59.9 58.8 57.5 58.6 60.4 61.8

Lithuania : : : : : : 62.3 61.7 59.1 57.5 59.9 61.1

Luxembourg 61.4 60.8 59.9 58.7 59.2 59.9 60.5 61.7 62.7 63.1 63.4 62.7

Hungary : : : : 52.1 52.4 53.7 55.6 56.3 56.2 56.2 57

Malta : : : : : : : : 54.2 54.3 54.4 54.2

Netherlands 64 63.6 64 64.7 66.3 68.5 70.2 71.7 72.9 74.1 74.4 73.5

Austria : : 68.5 68.8 67.8 67.8 67.9 68.6 68.5 68.5 68.7 69

Poland : : : : : 58.9 59 57.6 55 53.4 51.5 51.2

Portugal 66.6 65.1 64.1 63.7 64.1 65.7 66.8 (b) 67.4 68.4 69 68.8 68.1

Slovenia : : : : 61.6 62.6 62.9 62.2 62.8 63.8 63.4 62.6

Slovakia : : : : : : 60.6 58.1 56.8 56.8 56.8 57.7

Finland 65.1 61 60.3 61.6 62.4 63.3 64.6 66.4 67.2 68.1 68.1 67.7

Sweden 75.9 71.3 70.2 70.9 70.3 69.5 70.3 71.7 73 74 73.6 72.9

United Kingdom 67.9 67.4 67.9 68.5 69 69.9 70.5 71 71.5 71.7 71.7 71.8

Bulgaria : : : : : : : : 50.4 49.7 50.6 52.5

Croatia : : : : : : : : : : : 53.4

Romania : : : : : 65.4 64.2 63.2 63 62.4 57.6 57.6

Turkey : : : : : : : : 48.8 47.8 46.9 45.8

Iceland : : : : : : : : : : : :

Norway : : : : : : : : 77.5 77.2 76.8 75.5

United States 70.8 71.2 72 72.5 72.9 73.5 73.8 73.9 74.1 73.1 71.9 71.2

Japan 69.6 69.5 69.3 69.2 69.5 70 69.5 68.9 68.9 68.8 68.2 68.4

Bartho Pronk


ANNEX II

Source : EurostatTOTAL UNEMPLOYMENT RATE %

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

EU (25 countries) : : : : : 9.4 9.2 8.8 8.5 8.9 9.1 9.0

EU (15 countries) 10.1 10.5 10.1 10.2 10.0 9.4 8.7 7.8 7.4 7.7 8.1 8.1

Euro-zone 10.2 10.9 10.6 10.8 10.8 10.2 9.3 8.4 8.0 8.4 8.9 8.9

Euro-zone (12 countries) 10.1 10.8 10.6 10.8 10.8 10.2 9.4 8.5 8.0 8.4 8.9 8.9

Belgium 8.6 9.8 9.7 9.5 9.2 9.3 8.6 6.9 6.7 7.3 8.0 7.8

Czech Republic : : : : : 6.4 8.6 8.7 8.0 7.3 7.8 8.3

Denmark 9.6 7.7 6.7 6.3 5.2 4.9 4.8 4.4 4.3 4.6 5.6 5.4

Germany 7.7 8.2 8.0 8.7 9.7 9.1 8.4 7.8 7.8 8.7 9.6 9.8

Estonia : : : : 9.6 9.2 11.3 12.5 11.8 9.5 10.2 9.2

Greece 8.6 8.9 9.2 9.6 9.8 10.9 12.0 11.3 10.8 10.3 9.7 :

Spain 18.6 19.8 18.8 18.1 17.0 15.2 12.8 11.3 10.6 11.3 11.3 10.8

France 11.1 11.7 11.1 11.6 11.5 11.1 10.5 9.1 8.4 8.9 9.5 9.6

Ireland 15.6 14.3 12.3 11.7 9.9 7.5 5.6 4.3 3.9 4.3 4.6 4.5

Italy 10.1 11.0 11.5 11.5 11.6 11.7 11.3 10.4 9.4 9.0 8.6 :

Cyprus : : : : : : : 5.2 4.4 3.9 4.5 5.0

Latvia : : : : : 14.3 14.0 13.7 12.9 12.6 10.4 9.8

Lithuania : : : : : 13.2 13.7 16.4 16.4 13.5 12.7 10.8

Luxembourg 2.6 3.2 2.9 2.9 2.7 2.7 2.4 2.3 2.1 2.8 3.7 4.2

Hungary : : : 9.6 9.0 8.4 6.9 6.3 5.6 5.6 5.8 5.9

Malta : : : : : : : 6.8 7.7 7.7 8.0 7.4

Netherlands 6.2 6.8 6.6 6.0 4.9 3.8 3.2 2.9 2.5 2.7 3.8 4.6

Austria 4.0 3.8 3.9 4.4 4.4 4.5 3.9 3.7 3.6 4.2 4.3 4.5

Poland : : : : 10.9 10.2 13.4 16.4 18.5 19.8 19.2 18.8

Portugal 5.6 6.9 7.3 7.3 6.8 5.1 4.5 4.1 4.0 5.0 6.3 6.6

Slovenia : : : 6.9 6.9 7.4 7.2 6.6 5.8 6.1 6.5 6.0

Slovakia : : : : : : 16.7 18.7 19.4 18.7 17.5 18.0

Finland 16.3 16.6 15.4 14.6 12.7 11.4 10.2 9.8 9.1 9.1 9.0 8.8

Sweden 9.1 9.4 8.8 9.6 9.9 8.2 6.7 5.6 4.9 4.9 5.6 6.3

United Kingdom 10.0 9.3 8.5 8.0 6.9 6.2 5.9 5.4 5.0 5.1 4.9 4.7

Bulgaria : : : : : : : 16.4 19.2 17.8 13.6 12.0

Croatia : : : : : : : : : : : :

Romania : : : : 5.3 5.4 6.2 6.8 6.6 7.5 6.8 7.1

Turkey : : : : : : : 6.5 8.3 10.3 10.5 10.3

Iceland : : : : : : : : : : : :

Norway 6.0 (b) 5.4 (b) 4.9 (b) 4.7 4.0 3.2 3.2 3.4 3.6 3.9 4.5 4.4

United States 6.8 6.1 5.6 5.4 4.9 4.5 4.2 4.0 4.8 5.8 6.0 5.5

Japan 2.5 2.9 3.1 3.4 3.4 4.1 4.7 4.7 5.0 5.4 5.3 4.7

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114

ANNEX III

Source : Eurostat AVERAGE EXIT AGE FROM THE LABOUR FORCE: TOTAL WEIGHTED BY THE PROBABILITY OF WITHDRAWAL FROM THE LABOUR MARKET

2001 2002 2003

EU (25 countries) 59.9 (e) 60.4 (e) 61.0 (p)

EU (15 countries) 60.3 60.8 (e) 61.4 (p)

Euro-zone 59.9 60.4 (e) 61.0 (p)

Euro-zone (12 countries) 59.9 60.4 (e) 61.0 (p)

Belgium 56.8 58.5 58.7

Czech Republic 58.9 60.2 60.0

Denmark 61.6 60.9 62.1

Germany 60.6 60.7 61.6

Estonia 61.1 61.6 60.8

Greece 59.4 61.8 63.2

Spain 60.4 61.5 61.4

France 58.1 58.8 59.6

Ireland 62.8 62.4 64.4 (p)

Italy 59.8 59.9 61.0

Cyprus 62.3 61.4 62.7

Latvia 62.4 : 60.3 (b)

Lithuania 58.9 : 63.3 (b)

Luxembourg 56.8 59.3 :

Hungary 57.6 59.2 61.6

Malta 57.6 58.2 58.8

Netherlands 60.9 62.2 60.4 (p)

Austria 59.2 59.3 58.8

Poland 56.6 56.9 58.0

Portugal 61.9 63.0 62.1

Slovenia : 56.6 56.2

Slovakia 57.5 57.5 57.8

Finland 61.4 60.5 60.3

Sweden 61.7 63.2 63.1

United Kingdom 62.0 62.3 63.0

Bulgaria : 58.6 58.7

Croatia : : :

Romania 59.8 : 62.8 (p)

Turkey : : :

Iceland : : :

Norway 63.3 62.5 62.8

United States : : :

Bartho Pronk


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european view - volume 1 - spring 2005 - europe's economy and the challenge of growth

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