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News : EU Economy Last Updated: Sep 18, 2009 - 12:14:10 PM

A post-Lisbon Agenda growth strategy to make the EU fit for the future
By Finfacts Team
Sep 18, 2009 - 8:10:04 AM

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José Manuel Barroso at the European Parliament on Wednesday, Sept 16, 2009, after his reelection as president of the European Commission.

Deutsche Bank Research says now that the first green shoots of recovery have appeared, the time has come to look  ahead. With regard to the EU, above all a debate on the future growth strategy is called for. This applies all the more as the Lisbon Agenda will expire next year and the structural challenges have become even greater as a result of the crisis. But what should such a post-Lisbon Agenda (this does not refer to the Lisbon Treaty on institutional reform) look like?

DBR economist Tim Sprissler, writes that the political agenda is in the firm grip of economic crisis throughout the EU. Short-term measures to mitigate the crisis and fight the fall in demand are prevailing. He says there is not much scope for looking beyond today, and medium-term strategy has taken a backseat. But this may take its toll since the structural challenges facing our modern economies have not been eliminated - - rather, the need for a solution to the problems has become even more compelling as a result of the crisis. Now that the economy is showing first signs of a recovery, the time has come to look ahead. With regard to the EU, discussion about exit strategies from the massive government support programmes and above all a debate on the EU’s future growth strategy should be on top of the agenda. Global competition, technological progress towards the information society, climate change and not least the ageing of societies require immediate action. This holds all the more true as the Lisbon Agenda will expire next year.

Sprissler says the record of the Lisbon Agenda agreed by the EU heads of state and government in 2000 is mixed at best. The strategy aimed to make the EU fit for the future by coordinating reform efforts in the member states. To foster the development towards competitive and dynamic knowledge-based economies with high employment the EU member states were to heavily invest in R&D, education and training. In some of the many targeted areas progress has been made in the last few years. Nevertheless, the crisis jeopardises important achievements, e.g. with regard to employment ratios. In other areas, such as productivity growth and investment in R&D, many EU member states had difficulties even before the recent setbacks, however.

He says due to the mixed results of the reform effort to date and more urgent immediate problems such as fighting the economic crisis, the discussion on a post-2010 strategy is in danger of petering out. This would be extremely short-sighted and risky as the crisis has overshadowed the structural issues but at the same time exacerbated them. If the need for reform continues to be neglected, prosperity and social cohesion in the EU will be at stake.  This is why, a stress test which indicates whether the EU is adequately prepared for future challenges and how it may become better equipped for them is urgently needed. Maybe using such crisis vocabulary would make it easier to “sell” the required regearing of the EU member states’ coordinated reform strategy which taps synergies.

The economist asks what should such a post-Lisbon Agenda look like? Which objectives should it pursue?

Sprissler says the drive of the current Swedish presidency of the Council of the European Union to open the debate on the future growth model should be welcomed. Sweden is seeking to turn the EU into an eco-efficient economy, to increase the EU’s international competitiveness, to fight the impact of the demographic challenge and to re-establish fiscal sustainability. However, these goals do not obtain full approval; in particular the first item is controversial. For example, the European Commission and some member states, i.a. Germany, want to stick to the current focus on growth and employment. The debate should not give rise to an artificial  trade-off between growth and an eco-efficient economy, though.

Eco-efficiency, which according to the definition of the Swedish Presidency means the creation of more goods and services while using fewer resources and creating less waste and pollution, does not necessarily contradict continuing economic growth. Indeed, investment in the efficient use of resources can increase the competitiveness of an economy on the basis of the development of innovative technologies and the reduction of production costs. Here, a good example is Germany’s mechanical engineering industry since it has benefited from the production, use and export of eco-efficient technologies in recent years. Sprissler says if eco-efficiency does not mean stricter regulation without international coordination, the goals of delivering stronger, lasting growth and an eco-efficient economy can be jointly pursued in a post-Lisbon Strategy. Stricter regulations in the environmental area should in principle only be incorporated if an international consensus on climate change which minimises potential competition losses by coordinating climate protection efforts can be reached at the end of the year in Copenhagen.

Tim Sprissler says in shaping its future growth strategy, the EU should leave behind overly ambitious, all-encompassing targets and focus preferably on more efficient incentive mechanisms for initiating the required national reforms and improving their coordination. The mixed results of the Lisbon Agenda to date are not mainly attributable to the wrong targets - - rather, they are due to the fact that many countries having promised reforms have seldom lived up to their pronouncements. As the upcoming tasks mostly fall within the competence of the member states, the Commission has to rely on soft forms of coordination in order not to dilute the member states’ rights. He says the Lisbon Agenda’s “open method of coordination” provides the framework for cooperation between the member states and offers the opportunity of benchmarking reform efforts. However, the pressure to reform obviously remains too small as there is no ranking with active naming, praising and shaming. As experience shows, though, this type of public pressure seems to be required for reform-weary member states to take action. Only with a clear willingness to change and drive for reform will it be possible to make the EU fit for the next decade.

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