Remember the European Union’s “Lisbon Agenda“? Adopted by EU leaders almost exactly eight years ago, it was a programme that promised to turn the 27-nation bloc into “the most competitive and dynamic knowledge-based economy in the world” by 2010. 

Such was the lack of progress towards this laudable goal that by November 2004 an expert group led by former Dutch premier Wim Kok concluded that the Lisbon Agenda risked becoming “a synonym for missed objectives and failed promises”.

Today, the picture looks a whole lot rosier - at least if you believe the latest analysis prepared for the Lisbon Council think-tank by Michael Heise, chief economist of the Allianz Dresdner group in Germany. ”Despite the decade-long defeatism of the cynics, Lisbon is working,” says his report.

For the EU’s biggest economies, “economic progress has been so strong and confident that the EU-15 is actually ahead of schedule and could even exceed the Lisbon targets as measured in this study by 2010, if the positive trend continues”.

It sounds almost too good to be true. The report’s tone would certainly surprise many political leaders and businessmen in the US and Asia, where Europe is often portrayed as a continent in relative economic decline. In fact, when you read the Lisbon Council report in full, you begin to suspect that its real message is that the European economy, though strong in many respects, has obvious weaknesses as well. For example, on research and development spending, there has been “limited progress” and “most countries have a lot of catching up to do”.

The EU’s Lisbon target for R&D expenditure was 3 per cent of gross domestic product by 2010, but it stood in 2006 at only 1.9 per cent, according to the report. There may also less to the EU’s recent productivity growth than meets the eye. The report is reasonably upbeat but is careful to note that recent gains “may be only temporary and ultimately unsustainable”, because to some extent at least they simply reflect the buoyant economic cycle of recent years.

On Europe’s education systems, the report states: “The outlook for a further increase in the depth of tertiary education over the medium term in the EU is not bad. Admittedly, there are some alarming aspects, such as the high drop-out rates in some countries or the fact that in Germany only about one-fifth of 15-year-olds plan to go on to university…” So, is the EU fulfilling the grand promises it made in 2000, or is the Lisbon Agenda a flop?

It’s a mixed picture, and my hunch is that the real answer lies in the strong performance of some countries (Denmark, Finland, Ireland and Sweden) and the weak performance of others, especially Italy.

However, I completely agree with the report’s warning: “The biggest threat Europe faces is not the risk that external shocks will knock us off our stride, but the possibility that recent prosperity will be used as an excuse to abandon the very policies that are working so well today.”

March 5th, 2008 in Economic policy | Permalink