Commission reviews the economic underpinnings of the Lisbon Strategy
In light of the forthcoming mid term review of the Lisbon Strategy, the European Commission has published the 2004 edition of the EU Economy Review, which examines how current macroeconomic conditions are affecting Europe's competitiveness agenda. Overall, the communication notes that economic prospects improved in 2004 against the background of a favourable international economic environment. However, it adds that 'the contribution to growth of private consumption and investment, which are the two main components of domestic demand, remained too unsteady to speak of a truly secure recovery.' The review then goes on to analyse the economic underpinnings of the Lisbon Strategy in four main areas: cohesion, labour market performance, productivity and the relationship between the environment and economic growth. Addressing the issue of economic convergence in an enlarged EU, the review asserts that so far, the strides made by new Member States in catching up with the rest of the EU have been driven entirely by investment and total factor productivity growth. 'The challenge will be to broaden this process by drawing in underutilised labour resources, thus increasing the fairly low employment rates in most of the new Member States,' it explains. Structural Funds will also have a role to play in fostering economic convergence, believes the Commission, but in order to do so effectively certain conditions must first be met, such as a stronger focus on the regions and Member States most in need, and a more effective use of the funds in pursuit of the Lisbon objectives. On the recent performance of the EU labour market, the Commission offers the following stark assessment: 'Halfway through the first decade of the Lisbon strategy, it is difficult to see how the employment targets can still be achieved by 2010, partly because of the economic slowdown, but more importantly because progress on structural reforms has been slow and insufficient.' The review does identify significant progress in some areas, however, such as improved levels of female employment. The review notes that some have voiced doubts as to whether the Lisbon goals of raising employment and productivity at the same time are compatible, but it concludes that there are few reasons to think that higher employment has any negative implications for long-term productivity growth. Indeed, productivity growth itself is 'what really matters for the competitiveness and dynamism of the EU,' according to the economic review. The reality, however, is that the knowledge-based economy - a defining concept in the Lisbon Strategy - is still not yet fully entrenched in Europe. A 'considerable gap' exists between the EU and the US, both in terms of the amount of resources allocated to research and the efficiency of that research. Particularly, says the Commission, reforms are needed which will allow new innovative firms to establish themselves and grow. 'It is equally important to improve the 'leverage' of additional R&D [research and development] investments into productivity growth and to pursue with determination the target of increasing expenditure on R&D to 3 per cent of GDP,' the review states, adding that this will require improved framework conditions and interaction between research and industry. Lastly, the review notes that environmental sustainability is an integral part of the Lisbon strategy, and that environmental policies do lead to adjustments in economic structures by taking account of the increased scarcity of natural resources. 'In this way, the price of using environmental resources and of exposing the public to health risks should be brought closer in line with the social costs. This leads to a better working of the market, thus to a more efficient allocation of resources and associated welfare gains,' the review concludes.