At the Lisbon summit in March 2000, EU government leaders agreed on a new strategic goal for the European Union: to make it the most competitive economy in the world by 2010. Since then, the European Parliament has approved a range of economic legislation, mainly aimed at opening up markets in various goods and services. However, MEPs have generally sought to temper liberalisation with measures to protect consumers, employees, the environment and basic public services.
The declared aim of the heads of government at the Lisbon summit was to make the EU "the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion". What came to be known as the Lisbon strategy required action on various fronts: the internal market, the information society, research, education, structural economic reforms, a stable currency and a macroeconomic policy mix favouring growth and sustainable public finances. Most of these areas are interrelated: sustainable public finances assist growth and hence job creation, while less unemployment means lower social security costs, which in turn improves public finances.
When Parliament first debated the Lisbon objectives, MEPs were initially divided over the issue of liberalisation. Many called for greater emphasis on job-creation, environmental issues and the needs of the poorer sectors of the population. Others argued that jobs would follow from growth itself and therefore pushed for structural reform, believing too much worker protection could be counterproductive. In the end Parliament settled for a middle path, amending the European Commission's legislative proposals to strike a balance between the various interests.
Many of the measures agreed at Lisbon were not legislative but intergovernmental, based on coordination and benchmarking among Member States, with the Commission and European Parliament in a bystanders' role. However, others did require Community legislation, with Parliament playing a key part as joint legislator.
Job creation was a key objective of Lisbon although it was expected to follow mainly from economic growth generated by improved competitiveness, structural reform and less red tape. European governments were supposed to encourage best practice and the exchange of ideas about job creation. But no major legislation was planned on this front.
The overall target was to increase the employment rate to 70% of the population by 2010, with an intermediate target of 67% by 2005, goals which currently look difficult to achieve. However, more than six million jobs have been created since 1999 and the employment rate rose from 62.5% in 1999 to 64.3% in 2002. Long-term unemployment dropped from 4% in 1999 to 3% in 2002. Parliament has made the point in several resolutions that greater efforts are needed, especially to help reconcile work and family life and thus encourage more women to work. Indeed, a subsidiary target set at Lisbon was to raise the percentage of women employed from 51% in 1999 (compared to 61% of men) to 60% in 2010. Women are in fact doing better in the employment market. The same, however, cannot be said of older workers (defined as aged 55 to 64). The employment rate target for 2010 was set at 50% for this category of the population but in 2002 only 40.1% were working.
A complete and fully operational single European market was a key element of the Lisbon strategy. Removing barriers to competition and allowing companies from other Member States to access national markets on equal terms was regarded as crucial to economic growth. Over the last five years Parliament has adopted legislation opening up several markets: electricity and gas distribution will be fully liberalised by 2007; postal services will gradually face more competition, although with guarantees of a universal service for lightweight post; and rail freight transport will be liberalised, starting in 2006. During this parliamentary term, public procurement rules have also been updated to increase competition and therefore the cost of public works and supply contracts is expected to fall. There has been progress towards the single management of air space in Europe, which should reduce travel delays. However, proposals to open up port services to competition were rejected by Parliament owing to concerns over safety and employment.
Efficient and transparent financial markets foster growth through better allocation of capital. At Lisbon, there was a call for greater integration of the EU's national financial markets and since then Parliament has approved a range of legislation on subjects including a single passport for issuers of bonds and shares; boosting competition between banks and stock exchanges in the share execution business; common rules against insider dealing and market manipulation; eliminating barriers to investment in pension funds; opening up the insurance mediation market; protecting minority shareholders during takeover bids; transparency requirements for publicly traded companies.
A business-friendly environment
A friendlier environment for business, particularly small and medium-sized companies (SMEs), was another element of the Lisbon strategy. Member States were to share best practices and try to eliminate red tape and the cost of setting up new companies. In this area, Parliament's role has been limited. However, MEPs backed efforts to help SMEs and pushed to ensure their needs were reflected in the relevant legislation, for instance by making it easier for them to compete for public authority contracts or to have access to EU research funds. Agreement has been reached on an EU law to make intellectual property rights easier to enforce. And moves are under way on a law on the patentability of computerised inventions, the aim of which is to promote creativity and innovation by increasing legal certainty for companies that invest in new applications.
Another pillar of the Lisbon strategy was the development of the information society, which should help the shift towards a knowledge-based economy and the creation of jobs in areas with strong growth potential. The current Parliament has adopted major legislation designed to increase competition in the telecommunications industry and expand use of the internet. The present position is already fairly favourable, with productivity in the European telecoms industry about 15% higher than in the US, according to Commission studies. However, fully integrated and liberalised telecoms markets should lead to even lower costs and lower prices for the user, both private and corporate, and hence also cut the cost of internet access. And further legislation has been adopted to widen use of the internet, by creating an .eu domain name, tackling the problem of spam and making internet shopping easier.
Another broad issue is the "macroeconomic policy mix", i.e. the best balance of economic policy tools for achieving growth. The European Parliament has supported the independence of the European Central Bank and the goal of price stability as the basis for sustainable growth. However, MEPs have been critical of the fiscal part of the mix, as there is no fiscal policy at EU level and the Stability and Growth Pact, the set of rules on public expenditure, has not been respected to the letter by EU governments. The average annual deficit of EU governments was 2.7% in 2003, in part due to the weak economy. Average public debt is also on the increase, representing 64.1% of GDP. According to Parliament, the decline in GDP growth is due to the lack of structural reform in most Member States. MEPs have also been concerned at the failure to redirect public expenditure towards productive investment, as was agreed at Lisbon, and to alleviate the tax pressure on labour sufficiently.
Parliament has consistently supported the Stability and Growth Pact and MEPs have suggested introducing an early warning system when countries fail to achieve a budget surplus in periods of strong growth, and not only when deficits increase during slowdowns. The use of a "golden rule", by which certain types of investment would be excluded from the calculation of budget deficits, divides MEPs, who recently voted by the narrowest of margins not to support such a rule.
Research and education
Education and research have a major impact on growth and employment. As EU leaders said at Lisbon, "investing in people and developing an active and dynamic welfare state" are crucial to the knowledge economy. This means Member States must aim to increase per capita investment in human resources and give higher priority to lifelong learning, since better skills enhance employability. However, on the whole this area has not been subject to EU legislation. Instead only a benchmarking exercise was set up - and the results have been poor. The EU invests 1.1% of GDP in higher education, compared to 3% in the US. The difference is largely due to a lack of private capital, as public investment levels are similar. The proportion of adults with higher education is growing but the gap with America remains. And the percentage of young people dropping out of school without any sort of qualification (18.1% in 2003) is still way above the 10% objective for 2010.
Parliament approved of the goal agreed by Member States of devoting 3% of GDP to research and development but MEPs had no power to enforce this target. Little has been achieved in practice: research accounts for only 1.9% of GDP in the EU, compared to 2.9% in US and 3% in Japan.
However, the EU does have a joint research programme, accounting for just under 4% of the Community budget. Parliament helps set the funding level of this multiannual programme and has always pushed to increase the amount of money available. The EP also decides what the major research areas of programme should be. MEPs have backed efforts to promote movement of researchers and students, via the Erasmus Mundus programme, and have improved legislation on EU-wide recognition of professional qualifications, designed to make it easier for professional people to work in another Member State. Attempts to introduce a European Community patent, which would boost research by simplifying patent procedures, have run into the sand for the time being.
In general, labour productivity per person still lags behind that of the US, though to a large extent this is due to the choice made by Europeans to have more free time and longer holidays. In terms of productivity per hour, the difference between the EU and the US is lower and has been less than 5% in recent years. But an issue of major concern is that productivity is now growing at a slower pace than in the US, thus widening the gap. The reasons, according to the Commission, are less use of new technologies and inadequate investment levels. MEPs have also voiced concern about a worrying trend in investment in general: private investment fell to 17.2% of GDP in 2002, from 18.3% in 2000. Public investment as a percentage of GDP (2.4% of GDP in 2003) is also in decline (it was 3.8% in the 1970s) and is now far lower than in the US (3.3% in 2003).
In a recent resolution, Parliament criticised delays in the Lisbon strategy and called on Member States "to engage in a coordinated strategy for structural reforms". MEPs also called for "an urgent mobilisation of private sector investment for R&D", with a strong public research base with links with industry. Lisbon, Parliament believes, still represents the way forward.