- The Washington Times - Saturday, April 9, 2005

BERLIN — At its March 22-23 summit in Brussels, the European Union revitalized its Lisbon Strategy, meant to boost economic growth and employment in member states. The plan was designed in 2000 to make Europe the most dynamic and competitive knowledge-based economy in the world by 2010.

The target cannot be achieved, because reforms at the national and continental level have been too slow over the past five years.

In contrast to the situation in the United States, the economics of Europe are still bad. Growth throughout the European Union was only 2.3 percent in 2004. Within the Eurozone — which does not include the new Eastern European members, whose economies are booming — commercial activity grew by only 2 percent. The jobless rate was at 8.8 percent in January, which means 20 million people didn’t have officially recognized work.

Providing more jobs is the biggest challenge European leaders face. “If you fail in that, you surrender to globalization,” Erkki Liikanen, former EU-Commissioner for Enterprise, told The Washington Times.

If European countries succeed in creating more jobs, it will no longer be difficult to secure social welfare and pensions.

European economies have time in their favor. Thanks to low birth rates, unemployment will start declining automatically during the next decade. It is already declining in Finland, where the baby-boom generation has peaked. Because immigration is not encouraged, Europe eventually will have to seek qualified workers.

“We can be very happy if the next five years are better than the last five. The Lisbon Strategy does not have to be revitalized; it never took root,” said Martin Bartenstein, minister for the economy in Austria, in an interview with The Washington Times.

Austria has one of the lowest jobless rates in Europe — 4.5 percent — and has been positioning itself as a tax haven for international companies.

The most important reforms called for by the Lisbon Strategy are the creation of an effective internal market, boosting research and innovation and improving education. The whole package consists of 28 main objectives and 120 sub-objectives, with 117 different indicators. The reporting system for 25 member states adds up to no fewer than 300 annual reports. Nobody reads all of them.

The question is whom to blame for the failure of the Lisbon Strategy.

The Brussels-based European Commission blames uneven implementation of reforms in the member states. Jean-Claude Juncker, the current president of the European Council, recently addressed this shortcoming in a diplomatic way by saying that cooperation between the member states and the institutions in Brussels has to be improved.

Mr. Bartenstein has harsh criticism for the institutions in Brussels.

He has been suggesting for some time that the national governments should take the initiative and create their own programs, applying the motto: “Help yourself, and Europe will probably help you, as well.”

“There are no structural reforms for which you get applause from the electorate, but we have to do them,” Mr. Bartenstein said.

The March summit took up this theme:

All states of the European Union have to come up with national reform programs that continue for at least three years. They should be designed in cooperation with labor unions, business associations and national parliaments.

The reforms should focus mainly on productivity and employment. Said European leaders, this reform can be achieved by increasing spending on research and development and by completing the European Single Market.

“The internal market works well for goods but not for services,” Mr. Bartenstein said. He is one of the supporters of a far-reaching liberalization of internal markets for services, where there is no cross-border activity yet.

The main point of this reform project is that for all services that a company provides, the laws of the country of origin should in the future be relevant, not the one where it sells its services. This reform would make cross-border business much easier.

According to a study by the Danish think tank Copenhagen Economics, liberalization would increase economic growth in Europe by 0.6 percent, would create 600,000 new jobs and gradually lower prices for consumers.

Especially the unions, but also Germany and France fear that cheap labor from East, European member states will take away the well-protected jobs in their countries and undermine social standards.

Due to strong criticism from French President Jacques Chirac, such liberalization was rebuffed at the EU summit. “Neo-liberalism is the new communism,” Mr. Chirac declared.

It is not only that he opposes the “principle of the country of origin,” he also voiced concern that the French people may vote against the referendum on the new European Constitution in May if he accepts liberalization of services within Europe.

The new Eastern member countries don’t like this rejection of liberation of services, but they deferred to the big states.

“We have to show a minimum of flexibility if this [issue] would seriously disturb the referendum,” said Poland’s Prime Minister Marek Belka.

Experts dispute whether the recent amendment to the stability-and-growth pact will enhance the success of the Lisbon Strategy and improve macroeconomic conditions. The countries that adopted the euro can now incur more debt, which — if done excessively — will raise the interest rates they pay.

“Eventually, we will reach the point where interest payments are so high that without help from outside, we are blocked. This will have a big negative impact on the European economy, and it will be the end of the European Currency Union,” said Michael Burda, an American professor of economics at Humboldt University in Berlin.

Fritz Breuss, an economics professor in Vienna, Austria, is more optimistic: “The reform of the stability-and-growth pact will not increase growth very much within the European Union. It will still lag behind the United States. But the stability-and-growth pact needed reform, and this will not affect the euro.”

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