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Brussels, 27 January 2005

Member States need to embrace reform more decisively to create more growth and jobs, Commission reports show

Progress was made in the last few years to complete the European Union’s single market and improve the conditions for business, but much more needs to be done to increase the bloc’s competitiveness through sounder public finances, more active labour policies, more productive investment – including in knowledge - and more integrated markets, in order to step up economic growth and job creation whilst protecting our environment. These conclusions were drawn in key reports looking at the implementation of multi-annual targets for the economy as a whole and the internal market, employment and environment in particular. The reports or "Implementation Package", will feed into the forthcoming mid-term review of the EU's Lisbon strategy and the Commission’s report to the Spring European Council in March.

Broad Economic Policy Guidelines 2003-2005

In 2003 the Council adopted Broad Economic Policy Guidelines (BEPGs) for 2003-2005 setting out the EU’s medium term economic policy strategy to make Europe more competitive. The Commission’s second report on the implementation[1] of the BEPGs shows that progress continues to be mixed both across sectors and across countries.

On a positive side, the pace of labour market reform was maintained, the liberalisation of the energy and other network industries progressed, competition policy was enforced more forcefully and the European Union’s single market functions better -- all of which contributed to an overall improvement in the business environment and the competitive process.

But this was overshadowed by only limited progress regarding the transition to a knowledge-based economy – the main objective of the so-called Lisbon agenda set at the European Spring Council in 2000 --, the integration of the internal market in the field of services and the achievement of budgetary discipline .

Looking at the individual countries’ overall performance in achieving the recommendations made to them in 2003, particular mention goes to progress made by Belgium, Denmark, Finland, Ireland, the Netherlands and the United Kingdom while the record in the ‘old’ other Member States is more mixed. It is too early to assess implementation in the countries that joined the EU in May 2004 but Cyprus and Slovakia can also be cited as good follow up examples.

Looking at progress to achieve sound budgetary positions, only eight EU countries broadly managed to achieve and/or maintain a budget of ‘close to balance or surplus’ setting them in a better position to deal with economic fluctuations and the impact of ageing populations. By contrast, in 2004 too many countries still had excessive deficits. Important pension reforms were undertaken, in 2004, in a number of countries, including Italy and Slovakia, while in others they appeared insufficient to contain the budgetary burden arising from an ageing population (Greece) or are only at their initial stages (Czech Republic).

Despite different measures towards a knowledge-based economy, the progress is only gradual. The EU continues to lag behind the US in research and innovation and is unlikely to meet its objective of spending 3% of GDP in R&D by 2010 (a small increase was recorded in 2000-2003 but only to 2%) without major initiatives. Sweden and Finland continue to be the exception in this aspect.

Commenting on the report, Commissioner for Economic and Monetary Affairs, Joaquin Almunia said: “Member States need to embrace the path of economic reforms more convincingly if they want to achieve the ambitious objectives they have set themselves in terms of increased competitiveness and job creation”.

Employment remains Europe’s Achilles heel

Today, the Commission also adopted a Joint Employment Report (JER) for 2004-2005 which shows that despite reforms in several Member States, overall EU employment rates have stagnated and productivity growth has fallen.

With the employment rate stable at 63% in the period 2001-2003, the EU would need to create 22 million more jobs to reach the Lisbon target of 70% in 2010. Rates for women and older workers' employment have also stagnated at 55% and 40% respectively.

Although past labour market reforms have strengthened the resilience of employment to the economic difficulties, the report confirms that there has been little progress towards the three objectives of the European employment strategy (EES): full employment, improving quality and productivity at work, and strengthening social cohesion and inclusion.

EU Member States have made major efforts in making work pay (through measures such as tax and benefit system reform), reforming public employment services, fostering entrepreneurship and introducing lifelong learning strategies. But they have made little progress in managing economic restructuring, tackling undeclared work, investing in people’s education and developing active ageing strategies.

Advances in improving the quality of work were also uneven. The gender pay gap between men and women has remained around 16%, training rates are still low amongst those most in need and accidents at work, despite falling, are still high.

The report confirms that action is needed in the four areas identified by the Employment Taskforce (or Kok) report, namely: increasing adaptability of workers and enterprises; attracting more people to enter and stay in the workforce; investing more in people’s education and lifelong learning; and ensuring effective implementation of reforms.

A separate Joint Report on Social Protection and Social Inclusion shows that Member States are stepping up efforts to fight poverty and to ensure that pension systems will remain able to deliver adequate incomes to pensioners. They are focusing more clearly on key issues such as eliminating child poverty, improving housing conditions and raising school leavers' qualifications. They are also making serious efforts to reverse past trends towards earlier retirement and to offer more opportunities for private pension provision.

But overall, more than 68 million people, or 15 per cent of the EU population, lived at risk of poverty in 2002, the unemployed, the homeless and women (single parents and the elderly living alone) being usually the most vulnerable. The percentage of those at poverty risk range from 10 per cent or less in the Czech Republic, Sweden, Denmark, Hungary and Slovenia to 20 per cent or more in Ireland, the Slovak Republic, Greece and Portugal.

"Jobs, pensions and welfare are the top priorities of EU citizens. Today's report shows that the EU's method of coordinating policies to tackle social exclusion and to modernise pension systems is starting to bear fruit. However, Member States must still do more to boost employment, reduce poverty and ensure that pensions are both adequate and sustainable in future," said Vladimir Spidla, Commissioner for Employment, Social Affairs and Equal Opportunities.

Single Market: good progress except in services

The Commission’s second implementation report on the Internal Market Strategy 2003-2006 (see IP/03/645) shows good progress. Two-thirds of the legal steps towards a better internal market that the Commission wanted for 2004 have been completed.

But we need an internal market that functions even better if the EU is to deliver for its citizens the raised living standards the Lisbon agenda aims for. Economic indicators suggest that market integration is not moving fast enough. So more effort is needed on agreeing the EU laws that cut red tape for businesses who want to operate across borders and increase choice and reduce prices for consumers. Member States also need to do more to apply those laws properly.

The report includes an updated Internal Market Scoreboard, with Lithuania and Spain top of the league for implementing internal market law. Hungary and Poland are also in the “first division” and all ten new Member States have reduced their backlog since accession. The efforts made by France and Germany to improve their performance are bearing fruit and the Netherlands is back near the top of the table. Some other Member States have slipped back but overall the proportion of internal market Directives in force but not written into national law has fallen to 3.6 % across the EU 25, from 7.1% at enlargement.

France, Spain, Belgium, Austria, Ireland, the Netherlands, Portugal and Finland have reduced the number of infringement cases against them, though their performance is not matched by others.

Trade in goods between Member States is slowing. Trade in services is growing but is still only about 20% of that in goods. Price convergence in the internal market has stopped and cross-border investment is volatile.

All this means that despite good progress on several pending measures, the EU needs to step up market integration by adopting some key proposals delayed in the Council and Parliament, including the Community Patent, the Directive on patents for computer-implemented inventions and the simplification of the recognition of professional qualifications.

Internal Market Commissioner Charlie McCreevy said: “I see the internal market cup as three-quarters full. What has been achieved would have seemed unthinkable in 1992. More recently the Lisbon debate and the Kok Report have underlined that making the internal market work even better on the ground is a basic building block for Europe’s future prosperity. The Commission cannot make that happen alone. The enlarged EU has to come with us. And while politicians can create the framework, it is citizens and businesses who make markets work. Europeans have a good record of doing just that and that is one reason I am optimistic.”

Environmental policy and technologies

Today, the Commission also adopted its second annual Environment Policy Review, emphasising in particular the relationship between environment and the economy. New evidence has emerged on how environment policy and eco-innovation can promote economic growth and maintain and create jobs. Recent data confirm that eco-industries have been performing better than the rest of the economy.

In another report, the European Commission concludes that its ambitious Environmental Technologies Action Plan (ETAP) needs reinforcing. Good progress has been made in implementing it but further action in this area is needed.

Concretely, the report calls for the establishment of green investment funds, the definition of performance targets for key products and the drafting of national roadmaps for the implementation of ETAP in Member States.

Environment Commissioner Stavros Dimas said: “We need to dispel the idea that protecting the environment is a luxury. Environmental policy is a crucial element of the Lisbon Strategy.” He added: “Europe needs to invest more in innovative ways to protect the environment while boosting the EU’s competitiveness. Environmental technologies can make a crucial contribution towards achieving this goal”.

Europe-wide opinion polls have shown that a large majority of EU citizens want more emphasis placed on the environment and expect decisions to deliver better environmental quality and services at EU level.

Research Commissioner Janek Potocnik also said: “Environmental technologies are a prime example of how an economy focused on knowledge can retain high environmental standards. It is a good demonstration of how research can contribute to sustainable development. “

[1] This Implementation Report, alongside the draft Joint Employment Report and the Implementation Report on the Internal Market Strategy, forms the Implementation Package, feeding into both the Commission’s report to the Spring European Council ( to be held on 22nd-23rd March 2005) and the Mid-Term Review of the Lisbon Strategy.

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