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November 4, 2004
EU's Lisbon Strategy A Failure

Four years ago, under the prevailing winds of a booming global economy and the optimism generated by the collapse of the Iron Curtain, the European Union embarked on the Lisbon Strategy -- a plan to transform Europe into a single economy that would rival the US for global dominance. The Lisbon Strategy called for major reforms and investment into the EU's economic infrastructure, considered at the time to be ambitious but achievable. However, a new study conducted by a former Dutch premier has determined the Lisbon Strategy to be a failure, mostly due to the refusal of the EU's most prominent members to discipline themselves:

Commissioned by EU leaders in March, the study is a mid-term review of the Lisbon Strategy -- the ambitious set of social and economic reforms agreed by European heads of state four years ago. Then, with the dot-com boom in full-swing, unemployment falling and growth rates chugging along at more than 3 percent, the goal EU leaders set themselves of becoming the world's most competitive economy by 2010 looked ambitious but not impossible. Now, it has become a distant dream that even outgoing European Commission President Romano Prodi believes is unachievable. ...

France and Germany are two of the worst culprits, ignoring EU fiscal rules and single-market regulations, while failing to push through the painful reforms needed to make their economies more competitive and their social security systems more sustainable. But few EU countries, with the exception of the Nordic states, are in any position to boast about their housekeeping.

"The problem with Lisbon is not technocratic, it's political," says Paul Hofheinz, president of the Lisbon Council, a Brussels-based free-market think tank. "At the end of the day, as long as it remains political suicide for politicians to put reform plans on the table in their countries, there will not be any reform." Fierce resistance to French and German attempts to make even minor changes to welfare rules have proved how difficult the task is in Europe.

Part of the problem with the Lisbon Strategy comes from a fundamental misunderstanding of why the American economy creates such dynamism -- and that misunderstanding is not limited to Europe. However, Europe loves to paint Americans as workaholics, a population obsessed with money and competition. They see themselves as a much more empathetic and mature society, where social concerns matter more than economic and culture most of all. As the Washington Times reports, Europe does not want to create a highly competitive economic culture that will overwhelm their Europeanness; they want economic prosperity with no extra effort.

And how ironic that the two worst offenders for violating the Lisbon Strategy agreements are France and Germany -- the two European nations most obsessed with competing against America, both economically and diplomatically. Both have entrenched socialism that has created nanny-states and a population addicted to their services. Germany's government almost fell when it attempted the mildest of reforms designed to lessen the overwhelming burden of its smothering entitlements; France hasn't even tried offering any serious reforms.

What the EU and its populations, especially in these two countries, cannnot grasp is that one does not build dynamic economies by enacting 32-hour work weeks and forcing businesses to give everyone a month off in the middle of summer. The power of creativity cannot survive overwhelming handicaps on the capital investments needed to turn creativity into production. Tax burdens and a lack of an open market approach to labor dooms the EU, especially the Old Europe members, to economic ennui and decay, especially as its populations age and fewer workers must support the social programs servicing an increasing number of retirees.

The EU can draft all the Lisbon Strategies it wants, but until Europe faces some hard truths about their impaired ability to compete, all will be doomed to failure. Europeans have to decide whether they want to create a unified, world-class economy -- or whether they're content to fall further and further behind the dynamic markets of the capitalist nations, especially the US. And Americans must also recognize the failure of the European models so we can stop transforming our economic powerhouse into a European nightmare.

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Posted by Ed Morrissey at November 4, 2004 5:53 AM

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