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Brussels, 21 January 2004

Commission sets priorities for catching up with Lisbon agenda

The Commission has called on the spring European Council to take advantage of the economic recovery and the dynamic of enlargement to give the Lisbon strategy fresh impetus. Three priorities have been identified: improving investment in networks and knowledge, strengthening competitiveness in industry and services, and promoting active ageing. After four years of implementation of the Lisbon strategy, the Union's progress is still insufficient to achieve the objectives it has set itself. Although progress has been made in a number of key fields, the implementation of the reforms by the Member States does not measure up to the task. A number of sectors are even encountering significant difficulties.

Commenting on the report Commission President Romano said "Member states do not seem to realise that 2010 is around the corner. Four years after Lisbon it is clear that we are going to miss our mid-term targets. This should be a strong enough message to serve as a wake-up call to governments. At European level we have advanced steadily in setting the right priorities but Member States have not demonstrated enough "ownership". For 2004 we set three priorities: more investment in networks and knowledge, the reinforcement of industrial competitiveness and more measures to increase labour market participation. We ask governments to react on all three fronts swiftly. We have to take advantage of the economic recovery in order to make up lost ground. Europe deserves to do better."

Progress to date

The fourth report assesses the progress made since 2000 and calls on the European Council to seize the opportunities offered by the economic recovery and the dynamic of enlargement to give the necessary impetus to the Lisbon strategy. The Irish Presidency has made this one of its main priorities.

There has been some progress: 6 million jobs created since 1999, in spite of the economic slowdown; significant improvements in long-term unemployment and the rate of female employment; opening up to competition of several strategic network markets (telecommunications, energy, rail freight, etc.); internet take-up in schools, businesses, public administrations and households.

Nonetheless, the Union is still far from achieving the objectives set at the Lisbon European Council. Employment and productivity do not make a sufficient contribution to European growth. There are several reasons for this: the low employment rate of workers aged between 55 and 64, inadequate take-up and use of information and communication technologies, and the lack of investment in knowledge sectors (research, innovation, education and training).

Furthermore, the internal market is still too fragmented, in terms of both services and intra-Community trade. The performance of the Member States in transposing the directives related to the Lisbon strategy area is also mediocre (an average of 58% across the Union).

Finally, performance in terms of the environment, social cohesion and sustainable development is also insufficient.

Priorities for 2004

On the basis of this assessment, the Commission has called on the European Council to take the necessary decisions in the three priority areas, namely:

    Improving investments in knowledge and networks. To do this, the Member States must, as a matter of priority, commit to implementing the growth initiative through the Quick Start programme and the Investing in Research action plan. Investment in education and training must also be stepped up to sustain human capital.

    Strengthening the competitiveness of the European economy. The Council and Parliament should concentrate on a number of strategic proposals needed for greater competitiveness. The application of the Lisbon strategy to industry should be improved. Integration of the services market requires rapid progress on the proposal of the framework directive on services. Finally, the Union should strengthen synergies between the environment, research and industry to strengthen European competitiveness. The proposed Environmental Technologies Action Plan should be rapidly adopted as a matter of priority.

    Promoting active ageing by encouraging older workers to remain in the workforce, particularly by abolishing financial incentives for early retirement. At the same time, the Member States should embark on the modernisation of their health care systems, to make them more efficient and financially viable.

Streamlining and Mid-term review

Following the move to a better streamlined policy coordination cycle, this Spring Report is accompanied by an Implementation Package comprising the Implementation Report of the Broad Economic Policy Guidelines 2003-05,

the draft Joint Employment Report, assessing implementation in the Employment Guidelines,

(see also MEMO/04/10) and the Implementation Report on the Internal Market Strategy (see MEMO/04/11). This comprehensive package will form the basis for the European Council discussions on 25-26 March 2004.

The Commission has also invited the European Council to define a framework and method for the preparation of the mid-term review of the Lisbon strategy in 2005. Essentially, this review should focus on implementation and be based, most notably, on the post-2006 financial perspectives.


Implementation of 2003-05 Broad Economic Policy Guidelines

The Implementation Report assesses the progress made so far in implementing the EU's medium term economic policy strategy

It gives specific attention to the three priorities identified by the Council last June: (i) promoting growth, (ii) increasing flexibility of the labour market and (iii) ensuring sustainability of public finances. While in some areas the policy challenges are being adequately addressed, the overall pace of reform appears to be insufficient. With the current reform pace, full implementation of the guidelines in two years' time is at risk. This jeopardizes the fulfilment of the Lisbon targets by 2010.

    Macroeconomic policies supported economic growth

After two years of slow growth in the Union, economic growth returned in the second half of 2003 supported by macro-economic policies.

    Monetary authorities further eased interest rates and thereby supported domestic demand. Overall monetary conditions remained accommodative despite the appreciation of the euro.

    The fiscal policy stance in 2003 has been broadly neutral. Budgetary positions further deteriorated as the free play of automatic stabilisers helped to stabilise the economy but, in some cases, also as a result of discretionary loosening. Several Member States with still high structural deficits made little, if any, progress on redressing budgetary imbalances.

    Labour market reforms have been stepped up but appear insufficient to reach all the employment rate targets

After the labour market performed well in the beginning of the economic downturn, partly as a result of earlier reforms, employment growth stagnated and unemployment continued to rise in 2003. Nominal wages grew at about 3% leading to continued pressure on profitability and job-creating investment. Against this background it is encouraging to see that the pace of reform appears to have been stepped up somewhat:

    Reforms were made to make work pay, but focused again mainly on the tax side. More work is needed on the incentive effects of benefit systems, as well as other significant non-financial incentives;

    Further measures were taken to adapt the work organisation and to foster occupational mobility;

    Improvements were made in making active labour market policies more tailor-made.

    Some efforts have been undertaken to tackle regional differences in unemployment and to enhance the efficiency of investments financed by the structural funds.

Despite the progress in some areas of the labour market, most of the Lisbon employment targets risk being missed if no further reforms are undertaken.

    Progress in implementing measures to increase productivity and business dynamism seems mixed

The declining trend in labour productivity growth continued in 2003. The gap in labour productivity with the USA widened and now accounts for 40% of the difference in GDP per capita between the EU and the USA. As regards policies affecting competition, the business environment and the use of new technologies the pace of reform has improved. Progress is more limited in market integration and in investment in knowledge and research.

    The functioning of the internal market continued to be hampered by the absence of proper regulation in the areas covered by some 20 proposals pending before Council and Parliament. The average transposition rate by Member States deteriorated in 2003.

    Market opening in network industries continued to progress.

    Measures were taken to lower the administrative burdens and facilitate business start-ups.

    The Commission put forward an action plan to increase R&D investments to 3% of GDP by 2010.

    Good progress in implementing the Risk Capital Action Plan and the Financial Services Action Plan, but final effort is needed

The Risk Capital Action Plan is now almost completely implemented. Also the Financial Services Action Plan is well on the way to full implementation, but a final effort is required to meet the 2005 deadline. Corporate governance arrangements have been strengthened in several Member States as well as through the Commission's Action Plan on company law and corporate governance. Financial supervision arrangements are being streamlined at both the Member State and the EU-level.

    Despite good progress in pension reforms long term sustainability of public finances is not yet secured in about half of the Member States

In 2003 some Member States have made good progress in accelerating pension reforms. Less progress was made in bringing the public debt down, which remained above 60% of GDP in six Member States. About half of the Member States seem to have not yet secured long-term sustainability of public finances.

    Some progress in improving environmental sustainability

Various measures have been taken:

    At the EU level, directives laying down common rules for the electricity and gas market have been adopted and the coverage of legislation in energy taxation has been extended.

    At the Member State level, measures have been taken as regards the use of renewable energy and transport pricing.

No progress was noted as regards greenhouse gas emissions.


European Union needs to do more to reach its employment objectives

The Joint Employment Report assesses progress by Member States in implementing the new European Employment Strategy that was adopted in 2003,

towards the objective of more and better jobs. Overall, the report shows that reforms are continuing across the range of activities identified in the European Employment Strategy, but more needs to be done to accelerate employment and productivity growth. Unless efforts are stepped up to foster job creation and encourage more women, older workers and young people to enter the labour market, the European Union is in danger of missing the objectives and targets it set for itself for 2010.

The intermediate employment rate target of 67% in 2005 is unlikely to be met, even though four Member States (DK, NL, S, UK) have already achieved the 70% employment rate that is the objective for 2010. When the situation of specific groups is examined, it can be seen that the employment rate for women continues to improve and is on track to meet the 2005 intermediate target of 57%, but reform efforts must continue in order to meet the 2010 target. For older workers, there has been a substantial increase in the employment rate to just over 40%, but the 50% target remains a considerable way off. With the demographic challenges of an ageing population in Europe, it is imperative that the European Union consider how to keep workers in the labour market for longer and attract those who are not part of the active working population.

A worrying development has been the recent decline in labour productivity growth, which must increase if the European economy is to achieve sustained economic growth. The report highlights the importance in this area of a well-educated, skilled and adaptable labour force and hence the need for investment in human resources.

Flexibility within the labour market is recognised as necessary to adapt to economic change. However this flexibility must be balanced with security for workers, in terms of the quality of the jobs they do, the possibility to remain in employment and build a career and ensure a good balance between working and family life.

This report comes at a time of cautious optimism for a recovery in EU labour markets, and analysis of recent years shows that the European labour market was better able to resist negative effects of the recent economic downturn than was the case in the early 90s. Factors contributing to this resilience included rising participation, increasing skill levels and new types of working, resulting principally from structural reforms at national level. This confirms the approach agreed in the European Employment Strategy.

In establishing this report, the Commission has drawn on the findings of the European Employment Task Force created after the Spring 2003 European Council and chaired by Wim Kok

The task force was asked to look at what practical reforms were necessary to reach Europe's employment objectives. The priorities identified by them increasing adaptability of workers and enterprises, attracting more people to the labour market, investing more, and more effectively in human resources, and ensuring effective implementation of reforms through better governance are fully in line with the European Employment Strategy. The Commission has also drawn on the National Action Plans for Employment drawn up by each Member State to address the Employment Guidelines agreed at European level. The document will now be sent to the Council of Ministers, as the basis for a joint text to be presented by the Council and Commission to the European Council in March 2004.

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