Living in Denial

No this is not (yet) the title of one of my new pages (although we were looking into living in sin, but unfortunately it’s already taken). No the denial I am referring to is much nearer home for most of us, since it is up there in Brussels. “European Union nations are dragging their heels in their ambitious drive to become the world’s most competitive economy by the end of the decade” or so we are lead to believe from the EU annual survey published by the Commission on Wednesday.

This foolish piece of what the Spanish would call ‘chuleria’ (no easy translation but I suppose you could try vain self-important show-off bragging) – the pledge to overtake the US by 2010 – was adopted at the Lisbon 2000 summit. It was madness in its moment, now it looks just plain ridiculous.

There is also another Spainsh expression which comes to mind here: don’t open your mouth if you are only going to draw attention to your own weaknesses. In my book the pledge should never have been made. To keep it on the table as an objective now (one has visions of the various EU leaders being called into Prodi’s office for their annual ‘reviews’, to see whether their resepctive countries have fulfilled their ‘objectives’) is only to compound the error.

I’m sorry: the future has a name, it is called ‘Asia’ . Demographics guarantee that for us. What the US and the EU both have to do is find the way to accept this global rebalancing without provoking a ‘hard landing’. Rather than vying to see who will be first, perhaps a better philosophy for the Commission to adopt would be the motif to Tobias’s blog: Balding With Grace.

BTW: don’t miss the little detail at the end of the article posted below:”Long-term sustainability of public finances, particularly in view of the aging population, is not yet secured in about half the member states,” . This is in fact a recycling of a Solbes statement of a couple of years ago that I often quote. In fact Solbes was saying that they were unsustainable, not that sustainablity had not yet been secured. Since he made the initial statement matters have only deteriorated (the Stability Pact problem) so there hardly seems to be any reason for the change of emphasis. It is what you call Eurospeak I suppose, but isn’t that just the problem?

The EU’s executive agency said Europe is falling further behind the United States after a standstill year in which European job growth evaporated, public finances deteriorated and the average unemployment rate rose to 8.1 percent.

In an annual survey of how the 15 EU nations fare in trying to become economically more dynamic, European Commission President Romano Prodi said governments lack political will to overhaul the continent’s economies.

His report lamented a “substantial gap” between Europe and the United States in the ability to rally risk capital and money for research and development, quickly process patent applications and spend generously on information technologies.

EU employers reacted to the report with a new plea for governments to cut red tape and “deliver economic reform.”

At a 2000 summit in Lisbon, Portugal, the EU leaders pledged to overtake the United States as the world’s leading economy by 2010.

The plan was to boost investments in information technology, accelerating integration of European energy, transportation, telecommunications and other markets, aiming for an employment rate of 67 percent and making labor markets more flexible.

Four years on, “the overall picture … is mixed,” Prodi told the European Parliament where he formally unveiled the survey’s findings.

The EU “member states do not seem to realize that 2010 is around the corner. Four years after Lisbon it is clear that we are going to miss our midterm targets,” he said.

According to the EU head office, employment was stagnating at 64 percent and that for the 55-64 age group the rate was only 40.1 percent.

Among other things it blamed inadequate use of information and communication technologies, insufficient investments in research, innovation, education and training and a still fragmented EU home market that grows to 25 nations in May.

France, Germany and Italy top the list of nations failing to make the required economic and labor law reforms, said Prodi, while Austria, Luxembourg, Denmark, the Netherlands, and Sweden have done best,

The Commission criticized resistance to a single EU patent ? crucial to quickly bringing new products and services on the market ? or EU-wide criteria for professional standards.

“The worst of all is the lack of leadership the report highlights in EU member states,” said Paul Hofheinz, president of the Lisbon Council, a Brussels-based research institute.

“Everyone knows what needs to be done. But unless Europe acts now, there won’t be much of an economy left to reform.”

Ireland, which now holds the EU’s rotating presidency, wants to breathe new life into the so-called Lisbon Agenda.

UNICE, the umbrella organization of European employers federations, urged Ireland to ensure the EU leaders “commit themselves unambiguously to deliver economic reform” and cut red tape that stands “in the way of making Europe the most competitive economy in the world.”

The Commission report said the EU’s productivity growth rate_ now between 0.5 and 1 percent ? was far below the U.S. rate of 2 percent. “Lower labor productivity per hour worked now represents 40 percent of the difference in GDP (news – web sites) per capita between the EU and the USA,” the report said.

It put Europe’s per capita economic output at 72 percent of that of the United States, a gap “illustrates the need to stimulate market integration, business dynamism, and investment, particularly in knowledge.”

The report did not mention the fall of the dollar against the euro in recent months. The rising value of the euro is hurting European exports and slowing the continent’s economic recovery.

The Commission criticized France and Germany for running budget deficits over 3 percent of gross domestic product in violation of the ground rules for the shared currency.

Across the 12-nation euro-zone, “the average nominal budget deficit worsened further in 2003 to 2.7 percent of GDP,” said the Commission report.

It pointed to growing pension responsibilities. “Long-term sustainability of public finances, particularly in view of the aging population, is not yet secured in about half the member states,” the report said.

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