You are here

New Agenda Fails to Address Problems

Op-Eds & Articles

Title

New Agenda Fails to Address Problems

Murray Op-ed in EU Reporter Online

George Bernard Shaw once ob­served that: “The reasonable man adapts himself to the world; the un­reasonable one persists in trying to adapt the world to himself. There­fore all progress depends on the un­reasonable man.”  

The problem with Shaw’s dictum is that, when a person faces the un­desirable reality of his own creation, the only solution is to change thy­self. This is precisely what the Eu­ropean Commission is failing to recognize when it comes to the is­sue of sluggish economic growth.

The Commission has re-launched the ‘Lisbon Agenda’, aimed at mak­ing the EU the world’s most com­petitive, knowledge-based economy by 2010.

The agenda includes: generating employment and increasing flexibil­ity of the labor markets, increased emphasis on R&D, sponsoring stronger industrial base and com­pleting internal markets unification. However, no EU discussion of the policy issues can exclude political­ly correct blah-blah about the need to promote sustainability and ‘own­ership’ of the Lisbon process by the member states. The latter includes “the appointment in each state of a Mr/Mrs Jobs and Growth” in or­der to “coordinate the national re­form efforts.”

This Euro-talk apparently comes at the expense of the issues of low­ering taxes and the regulatory bur­dens across the EU, which are found nowhere in the Commission documentation. If anything, the re-birth of the Agenda appears to im­ply exactly the opposite—more harmonization and industrial base protection means more regulations and indirect state support. This, to­gether with increased state financ­ing of R&D, adds to higher spending and, given the fact that ten of the 25 EU states currently exceed the Stability and Growth Pact limits on deficit financing, means that taxes will remain high and may rise in re­al terms.

Despite the focus by the Bar­roso-led Commission on injecting new life into the Agenda, the new policy objectives are about as re­alistic as the original 2010 dead­line for the EU’s planned economic world domination. Using the latest forecasts, the average gross do­mestic product growth in the Euro­zone (2000-06), is expected to be around 1.48 percent. The unemployment rate has remained flat over the last 20 years, with the young workers’ category staying at around 17 percent av­erage for the 1983-2003 period and 17.7percent for the last three years.

There is little that can be done to change this without directly tackling the main sources of growth under­performance: low domestic demand (caused by high income and con­sumption taxation), low supply of hours worked, and low entrepre­neurship and labor force partici­pation (all driven by the generous welfare systems and substantial la­bor markets’ rigidities) and low in­vestment by the firms (caused, you guessed it, by high taxation of cap­ital income).

All of these problems were iden­tified in the European Competitive­ness Report, 2004 (ECR), yet no policy proposal from the Commis­sion addresses these bottlenecks. Labor income tax and welfare ben­efits reforms are a top priority in all of the ‘old’ EU-15 countries (includ­ing low-tax Ireland). Wage bargain­ing policies (that reflect the degree of unionization and minimum wage policies) are the second highest pri­ority in ten out of 15 EU countries (again, including Ireland). Inciden­tally, according to the ECR, not a single country has policies in place aimed at such reforms. All other policies aimed at increased labor market flexibility are of importance in less than one third of the EU-15 countries. The Commission priori­ties largely ignore these facts.

Politics as usual prevails in Brus­sels. The failed policies of the past aimed at smaller, less painful re­forms of the regulatory environment and ever heavier involvement of the EU in strategic sectors, remain at the top of the agenda. At the same time, the changes aimed at encour­aging lower taxation of incomes, consumption and investment activ­ity, and calling for reductions in gov­ernment spending are no where to be heard. Neither rational nor irra­tional in its prescriptions, the Com­mission appears to be bent on administering the same medicine of half-solutions and loud procla­mations that made the EU econo­my sick in the first place.