SO MUCH TO DO - AND SO LITTLE TIME
All 25 member states have presented national action plans as part of
the EU's revamped 'growth and jobs' strategy. A turning point for economic
reform – or another false dawn? George Parker reports
Almost six years ago, Europe’s leaders met in Lisbon at a summit
heady with the intoxication of the dotcom boom and made their infamous
that within ten years they could overtake the US as the world’s
leading knowledge-based economy.
The hangover has been long and painful. The economic reform effort launched
in Lisbon has spectacularly failed to meet its vainglorious objective
and the US has continued to widen the economic gap with the old world.
Meanwhile, China and India are moving up fast.
Faced with this grim reality, Europe decided to relaunch the Lisbon
programme in the spring of 2005, stripping away the dense thicket of
targets and assessments associated with it and focussing attention on
two key objectives: jobs and growth.
In January 2006 we saw the first results of this sleek new reform programme.
Günter Verheugen, the European Commission’s vice president
responsible for enterprise policy, claimed that the institution now
had “the tools” to push member states towards delivery.
Verheugen and his boss, José Manuel Barroso,
published the annual review of the economic reform process on January
24 claiming that reform was now underway but adding: “It is time
to move up a gear.”
But will things be any different this time? What
difference can the European Commission make to a process largely dependent
on the willingness of member states to reform? And is there any European
consensus emerging on what needs to be done?
On the last point, Jean-Claude Juncker, Luxembourg’s
acerbic prime minister, remarked last year: “We know what needs
to be done. We just don’t know how to win elections once we’ve
A few months later his friend Gerhard Schröder
proved the point, as he was booted out of office after pursuing the
first serious reform programme in Germany in many years, even if many
economists felt it did not go far enough.
But Barroso claims that politicians can win elections
after seeing through reforms. Indeed he argues that voters are now more
inclined to punish leaders who fail to address the problems facing Europe:
a shortfall in innovation, unemployment and a pensions crisis linked
to an ageing population.
The first thing to say about the new Union reform
programme is that it remains very much in the hands of the member states.
Barroso’s European Commission can make a difference,
of course, by promoting measures to open up the EU’s single market
– the services directive, for example – or by the way it
pursues competition or trade policy.
But the repeated use of the word “monitor”
by Barroso at his press conference in January was a reminder that the
Commission’s key role in the process is to assess whether member
states are keeping their promises and to chivvy along the laggards.
The main tool for achieving this objective is the
new national reform action plans, introduced in 2005 and assessed for
the first time by the European Commission in January.
The idea is that each country submits to Brussels
each year a plan setting out how it intends to create jobs and growth,
and in particular how it will meet two more specific economic targets:
an employment rate of 70 percent and a research and development (R&D)
3 percent of GDP.
What is striking about this exercise is that the
Commission is not using it as a chance to pick a fight with member states
which are falling behind – and that is a source of frustration
Wim Kok, the former Dutch prime minister, proposed
in a report in 2004 that the Commission should “name and shame”
countries which talked a good game but failed to deliver and “fame”
those whose performance was exemplary.
But that idea was quickly rejected by heads of government
at a summit in the autumn of 2004. Naming and shaming was out, said
Juncker, because countries like France and Germany did not want Brussels
creating a “negative” political climate at home.
In the absence of league tables of good pupils and
reform dunces, many feared the Commission’s annual review of national
action plans would become a paper exercise largely ignored by the media
and politicians at home.
Certainly it generated plenty of paper. And the Commission
bent over backwards to avoid confronting member states. Each country
was given a pat on the head for two or three good aspects of their reform
plans, and was urged to make improvements in two or three other areas.
The mild rebukes were enough to generate some modest
media coverage in some member states, but it was hardly going to get
politicians with a bad reform record waking up in a cold sweat.
In France, for example, the Commission’s
January economic review merited some stories on the inside pages, but
in Britain and Germany there was much less interest.
So are politicians in the national capitals going
to take this new exercise seriously? The signs from the first national
action plans were mixed, and one did not have to be a cryptologist to
see the Commission’s dismayed response to the way some governments
approached the exercise.
Hungary and Italy in particular were criticised for
producing reform plans which were lacking in joined-up policymaking
between departments and devoid of precise targets and dates to upgrade
their economies. Both countries also happen to be at the top of Brussels’
list of problem countries when it comes to their economic performance.
Nevertheless Verheugen said he was not disappointed,
and pointed out that this was just the start of the national action
plan process. The real test would come in 2007 when the Commission assessed
what measures had been taken to deliver on the promises in the 2006
Benchmarking of national performances has never proved
particularly successful as a policy tool in the EU in the past, but
the Commission hopes that economic reality is pushing countries to reform
and that the new system will help them measure their progress against
the best performers.
The national action plan process does at least have
the merit of being a single exercise, replacing the plethora of policy
plans submitted to different Commission departments and almost completely
ignored by the Brussels press corps.
They included national reports on employment policy,
the sprawling ‘Broad Economic Policy Guidelines’ and something
called the Cardiff process.
When asked what the Cardiff process was, one EU official
who should know better admitted: “Er, I don’t know.”
Closer research reveals it is about environmental sustainability.
By focussing on raising R&D spending and promoting
active labour policies to raise employment rates for young people, women
and the elderly, Barroso is effectively exhorting all of Europe to become
Indeed at his press conference he cited the Nordic
countries as examples of high-growth, high-tech countries others might
want to emulate. He avoided mentioning Britain – too Anglo-Saxon
and starting to stutter – or any continental economic model apart
from Luxembourg, whose prosperity owes as much to offshore banking as
to bold economic reforms.
Although the Commission avoided producing league
tables for R&D spending and employment rates, it was clear to see
which countries are falling furthest behind.
Only Finland and Sweden exceed the 3 percent of GDP
target at the moment, with Denmark and Germany next in line; among the
worst performers at less than1 percent of GDP are Portugal and most
of the new member states.
On employment rates, four countries already top the
EU target of 70 percent: Denmark, the Netherlands, Sweden and the UK,
while those with the worst records include Belgium, Greece, Poland and
Will next year’s review of the national action
plans be a cause for quiet satisfaction or more gnashing of teeth? Barroso
and Verheugen sounded modestly optimistic, even if they admitted there
was a lot to be done.
The most encouraging sign is nothing to do with political
will but economic reality. For the first time in five years, the EU
economy looks set to grow at more than 2 percent in 2006, unemployment
is nosing down and budgetary crises are starting to ease.
Barroso has always stressed the link between unemployment
and the ability to push through economic reforms. Without work, or the
prospect of work, reforms to make it easier for companies to open and
close, or to hire and fire, are always going to be harder to sell to
With more money in finance ministry coffers, there
is a greater opportunity
to adopt the reforms to health and pension systems which require upfront
expenditure to produce gains further down the track.
Programmes like youth training and crèche
provision to help working mothers also cost money and could become more
affordable if the EU economy is finally growing.
The Commission’s focus on the Nordic model,
with its ‘flexicurity’ – flexible labour markets buttressed
by social policies to help the unemployed into work – has admirers
across Europe and is less controversial than the more red-blooded Anglo-Saxon
“I’m not happy with the results yet,
but there is a growing consensus in Europe,” Barroso said.
It could all go wrong of course. There were similarly
upbeat forecasts at the beginning of 2005, only for an oil price hike
to knock the fragile recovery and good intentions on economic reform
off course. An election in France in May 2007 is unlikely to create
the climate for radical economic reforms, and the debate over the services
directive is likely to expose the gap between reform rhetoric and political
Although Verheugen says “the convoy has left the harbour and is
heading in the right direction”, this being the European Union
the comparison is not exactly apt.
As Barroso said, the convoy is moving at different
speeds, making it rather unlike a convoy at all. Sailing through the
perilous waters of the globalised economy, the European fleet remains
highly vulnerable unless it sticks together.