Getting competitive?

Shining example: clean energy, as produced by the world's largest solar platform near Seville, is a key part of Europe 2020. Photograph: Reuters

Ten years after setting out to become the world’s most dynamic economy, the European Union is having another go at reinvigorating growth. The previous attempt, under the so-called Lisbon agenda, fell far short of its somewhat unlikely goal.

This time, EU leaders are determined to get it right and not set over-ambitious targets in their new 2020 strategy to boost economic growth and create jobs.

Some of the initial omens are good. France and Germany have united behind a drive for better economic governance and made clear they will push their goals hard. Without the EU’s traditional economic and political drivers on board, the chances of success are minimal, and their commitment to seeking realistic goals is also encouraging.

“For me it’s important that Europe is truly honest about the discussion on how we’ll shape growth in the future, that we’ll put the facts on the table: where are we good and where are we bad?” German Chancellor Angela Merkel said after a summit with French President Nicolas Sarkozy on February 4, at which they promised to make joint proposals to the EU’s informal summit a week later. “In the past we promised some things that we weren’t able to achieve. And often we weren’t very honest about who didn’t deliver what.”

Herman Van Rompuy, the European Council’s new full-time president, also sent an encouraging signal by putting the EU 2020 strategy high on his agenda and making it the main item for the February 11 informal summit.

But the EU leaders’ 2020 discussions were overshadowed by Greece’s debt problems and the risk of contagion to other members of the 16-country eurozone. Clear divisions have also emerged over whether states that do not meet their targets should be sanctioned. Spanish Prime Minister José Luis Zapatero’s call in January for countries to face “corrective measures” if they underperform was quickly put down by German Economics Minister Wolfgang Schäuble.

Whispers of rivalry and competition between Van Rompuy and European Commission President José Manuel Barroso also do not augur well. EU sources say both drew up proposals for the summit and then had to compromise over who did what at the meeting.

“There was a bit of a turf fight over who should get the kudos for drawing up the proposals,” said one EU official. Such battles, however small, will be hard to avoid, especially so soon after the introduction of the institutional reforms set out in the Lisbon Treaty that came into force on December 1, but smooth cooperation will be vital to enhance the EU’s chances of quickly agreeing and then pursuing its 2020 targets.

Above all, perhaps, the economic climate is not ideal for launching challenging initiatives and setting tough targets in search of sustainable, innovative and “greener” growth. China and other emerging powers are very much in the ascendancy while the EU is struggling to emerge from recession, with the unity of the eurozone under threat from the debt crisis in Greece, which could easily spread to other member states such as Spain or Portugal.

The other EU leaders would do well to take heed of Merkel and be honest in their assessment when they look back at why the Lisbon agenda did not achieve all its goals. A previous generation of EU leaders decided at a summit in the Portuguese capital in March 2000 to try to become “the most dynamic and competitive knowledge-based economy in the world” by 2010. At that time, economic growth was so strong that EU leaders hoped to catch up with the United States.

They set targets of three percent average economic growth and creating 20 million jobs by 2010.

Other goals included increasing the employment rate to 70 percent of the population by 2010; reducing greenhouse gas emissions to clean up the environment; encouraging innovation by ensuring more homes have internet access and spending more on research and development; doing more to support small businesses and increasing competition in telecoms and the gas and electricity markets.

Employment did rise – though not to the 70 percent target – and the EU telecoms and financial services markets were liberalised considerably, but spending on research and development did not surge and the key targets of three percent economic growth and creating 20 million jobs were not achieved.

So what went wrong? The goals quickly became extremely difficult because the economic situation worsened across Europe, even before the downturn of 2008 and 2009. Europe was hit particularly hard because of its ageing population at a time when competition from Asia was growing. There were also political disagreements over issues such as the liberalisation of labour markets in the drive to strengthen the EU’s single market.

The European Commission reports that between 2000 and 2008 GDP per capita increased by 13.5 percent, employment rose from 62 percent to 66 percent, and unemployment fell to seven percent. The economic crisis drove GDP down four percent in 2009, industrial production fell 15 percent (to 1999 levels) and unemployment rose to about 10 percent of the population.

Barroso said as early as 2005 that the Lisbon agenda had been “blown off course by a combination of economic conditions, international uncertainty, slow progress in the member states and a gradual loss of political focus.”

The EU relaunched the strategy in March of that year, putting new emphasis on jobs and growth. But Swedish Prime Minister Fredrik Reinfeldt acknowledged last June, just before his country took over the EU presidency, that the Lisbon agenda had not met its headline goal. “Even if progress has been made, it must be said that the Lisbon agenda, with only a year remaining before it is to be evaluated, has been a failure,” he and Finance Minister Anders Borg wrote.

The deterioration in the economic climate was not the only reason for the failure to meet the Lisbon goals. Some experts blame a lack of political will and point to the fact that the targets were not binding and no country was sanctioned for falling short.

Choosing whether to apply sanctions as a punitive measure for non-compliance is one of the decisions EU leaders face as they work on the 2020 strategy that should be fleshed out at a summit in March and finalised in June.

“It’s absolutely necessary for the 2020 strategy…to take on a new nature, a binding nature,” Zapatero told reporters shortly after Spain began its six-month EU presidency, suggesting such measures could help ensure the success of moves to strengthen the EU’s single market and unify energy markets. “The informal summit on February 11 must bring up, in my opinion, measures including incentives and corrective measures for objectives set out in our economic policy.”

The summit did not include such discussions. Van Rompuy stopped short of proposing sanctions although he wants incentives offered in the form of extra funding for governments that meet their 2020 commitments. How or whether the targets will be enforced and monitored has yet to be agreed, but Van Rompuy favours making the assessments public to avoid countries falling behind.

The 2020 strategy will aim for economic growth potential of two percent per year. Van Rompuy wants fewer guidelines included than in the Lisbon agenda, and says up to five “quantitative targets” should be agreed at the March summit. Targets will then be set for individual member states in time for the June summit and they will run alongside those for reducing harmful greenhouse gas emissions by 2020.

Europe’s leaders agree the 2020 strategy is unlikely to succeed unless they find better ways to work together to boost growth and jobs.

“Without coordination of economic policies the single market and single currency could suffer heavily,” said Diego Lopez Garrido, Spain’s state secretary for the EU.

France and Germany lined up behind these ambitions at their February 4 summit. “We will present common proposals on issues that are important to us. Economic governance for the 27 (EU states) is something where we are very much in agreement,” Sarkozy said.

Merkel wants Europe to be the “driving force for a new global financial architecture” and has made clear she believes France and Germany should have a leading role in defining and spearheading the 2020 strategy.

“We need to create this Franco-German leadership, the regulation of capitalism and the transition for the institutions of the 20th century with the institutions of the 21st century. This is not against anyone, and it does not translate into any desire to be arrogant or to dominate or give lessons to anyone. Rather, we want a Europe that exists strongly in the political domain and for Europe to exist strongly, Germany and France have to work together,” she said.

Strong commitment by Paris and Berlin is important if the 2020 strategy is to succeed, but such ambitions could also leave smaller member states feeling left out of decision-making. New member states from eastern and central Europe are also likely to find it strange committing to a 10-year plan that brings back memories of Soviet-era planning. Such hesitations need to be overcome if the 2020 strategy is to be a success and unity among member states, as ever, will be vital.