A new economic model

Slowly, and somewhat reluctantly, the EU is beginning to embrace economic reform. For years America's equity-orientated, shareholder-value-driven economic model appeared anathema to much of the continent. At last, however, continental Europe seems poised to imitate at least some of the features of Anglo-Saxon capitalism.

The Lisbon summit in March may prove to be a defining moment in the history of the EU. While the pre-summit hype about 'dot coms' and the internet revolution may have remained largely unfulfilled, there can be little doubt about the reformist thrust of the Lisbon conclusions. European governments appear to be moving beyond the sterile debate about budget deficits and inflation rates, which dominated the run-up to the launch of the euro. They are beginning to conduct a serious discussion on the structural reforms which will be needed if the euro – and the European economy as a whole – is to function effectively. The summit's conclusions suggest that the first signs of a coherent European economic policy are emerging – one that seeks to reform labour markets, reduce state aid and introduce more rigorous competition across the EU.

This is not to say that strains and tensions were absent from the Lisbon summit. Britain, France and Germany can rarely converse for long in the same economic language. Tony Blair's lectures on the virtues of 'flexibility' are greeted by French Premier Lionel Jospin with about as much enthusiasm as the British traditionally reserve for that other F-word, federalism. Gerhard Schroeder, who flirted with Mr Blair's 'Third Way' last spring, has shunned it since voters in state elections (and many in his party) appeared to give it the thumbs down.

Before the summit had even formally begun, M. Jospin, under pressure from trade unions at home, warned that rapid moves to further liberalise public utilities were unacceptable. Significantly, however, the British and German governments managed to present a united front, despite their recent confrontations over issues such as BMW's pull out from Rover.

To a certain extent, M. Jospin's obstruction won its rewards. Hopes that the summit would set clear dates for the full liberalisation of the energy, post and transport markets were dashed with the EU deciding instead simply to 'speed up' the process. The EU also committed itself to running a rate of growth of 3 per cent (though that was carefully described as a 'realistic prospect' rather than a formal target) despite fears this could lead to conflict with the European Central Bank. Otmar Issing, the Bank's chief economist, was quick to point out that the ECB, charged with controlling inflation rather than promoting growth, will receive the blame if the Union fails to meet this ambitious target.

Yet M. Jospin's reluctance to embrace reform should not be over-stated. Despite his government's recent setbacks (such as its failure to push ahead with radical tax collection and pensions reforms) he is probably still a prime minister who tends to talk left and act right. His recent decision to appoint Laurent Fabius, an arch-moderniser, as finance minister suggests that the French government will follow at least some of the reformist agenda promoted by its former finance minister, Dominique Strauss-Kahn.

In fact M. Jospin signed up to a lot of reform at Lisbon. There is a firm commitment to integrate and liberalise telecoms markets by the end of next year, which should not only help the fledgling internet sector but also improve competitiveness in European business as a whole. A target date of 2005 was set for the passage of the many elements in the hugely complex Financial Services Action Plan. Other Lisbon conclusions — such as the need to reduce red tape for small businesses and the request that the Commission study the thorny issue of pensions reform — remain vague; but the reformist thrust of the language is clear.

Now EU governments have to convert their verbal commitments into real reform. Many of the policy areas requiring action, such as measures to promote employment, remain primarily the preserve of national governments. These cannot be dealt with through EU directives. Progress in these areas requires benchmarking, exchange of best practice and peer-group pressure. But will these new and fashionable techniques, endorsed by the Lisbon summit, deliver results?

The Lisbon summit is more likely to produce results if the European Commission gives a clear lead. Romano Prodi's Commission has been stumbling towards something close to a Blairite position on economic policy, but it seems surprisingly reluctant to articulate its ideas. Economic directives often become lost during labyrinthine drafting processes. The Financial Services Action Plan, for instance, cuts across as many as five commission directorates, with five commissioners desperate to have a say on its contents; and this is before the proposals reach the 15 member-states and the European Parliament.

The Commission should take Lisbon as its cue to try and improve its act. The Council of Ministers has asked the Commission to report back on the Lisbon process at another summit next spring. The Commission should then produce a new white paper, modelled on Jacques Delors' famous single market white paper, which would provide firm target dates and flesh out policy areas which were only touched upon at this year's summit. In addition, the Commission should appoint an experienced Commissioner, such as Mario Monti, as an economics supremo charged with overseeing the fulfilment of the Lisbon commitments. That would greatly increase the chances of the EU meeting its highly ambitious goal of becoming 'the most competitive and dynamic economy in the world' by 2010.