Brussels, 11th December 2007
[Graphic in PDF & Word format]
Part One: The Commission's December 2007 Strategic Report
What are the main conclusions of the Commission's report?
First, European and national level reforms are delivering results and contributing to growth and jobs at present and for the future. The national Implementation Reports demonstrate that Member States have taken many of the necessary steps to implement their programmes and to reinforce them in the light of the Commission's assessment last year and of the European Council's commitments.
Second, it is essential that Member States implement outstanding reforms. Although there is a broad consensus on what needs to be done, the pace of delivery has been uneven. Not all Member States have undertaken reforms with equal determination. Reforms in some areas, such as opening up energy and services markets and tackling labour market segmentation, have lagged behind. Some signs of "reform fatigue" have become apparent over the last twelve months.
Third, both the EU and Member states will need to implement further reforms to sustain solid economic growth in the future and help the EU withstand adverse developments in the global economy. For the EU level, action is needed on key priorities, including a Small Business Act, the creation of a European Research Area and an affordable patent system, and closing further gaps in the Single Market in the services and energy industries
What are the main new policy elements in the package? What proposals is the Commission making to the Spring European Council?
The Strategic Report calls on EU leaders at the 2008 Spring European Council to give fresh impetus by agreeing a limited number of high-impact actions in the four priority areas and then by ensuring their governments follow up those commitments.
These include: increasing high-speed internet access to achieve a 30% connection rate of the EU population and connection of all schools by 2010; setting national targets and policies to raise the basic skills of young people and reduce early school leaving; adopting a comprehensive European Small Business Act; improving framework conditions for innovation through an integrated patent jurisdiction and a single affordable patent; completing the internal market for energy; setting mandatory energy reduction targets for government buildings; and systematically including energy efficiency as the one of the award criteria for public procurement.
The package also reinforces the external dimension, combining openness with the legitimate defence of the European interest. Dialogue with third countries will be strengthened and streamlined, with a clearer focus on globalisation issues of mutual interest such as regulatory convergence, migration and climate change. In future the Commission will adopt a single annual report on market access, identifying countries and sectors where significant barriers remain.
The new and innovative Community Lisbon Programme focuses more clearly on the EU’s own contribution to the four priority action areas referred to above. It includes among its 10 key objectives, in addition to contributing at European level to achievement of the new goals the Commission is asking the Spring European Council to endorse: the rapid adoption by the European Parliament and the Council of the Commission's "blue card" proposal for a skills-based immigration policy; further steps to integrate EU financial services markets and enhance their stability in the light of the current turbulence; and the promotion of a sustainable industrial policy.
Does this reinforcement of the Strategy set out in the Report require amendments to the Integrated Guidelines?
No. The above reinforcements do not require amendment of the Integrated Guidelines agreed unanimously by Member States in 2005, so the Commission is proposing those Guidelines should be unchanged for the next cycle. However, the text accompanying them is amended in order to reflect the changes of emphasis.
The package makes clear in particular the need for an even higher priority for the social dimension, education and skills, information and communication technologies, flexicurity, energy and climate change.
What do this year's country specific recommendations cover?
The recommendations the Commission is proposing primarily cover areas already signalled as needing further attention last year such as fiscal consolidation, financial sustainability, labour market reforms, competition in network industries and services, investment in R&D and improving the regulatory environment. A proposed recommendation signifies that in the Commission's view, though there may have been some progress, the Member State concerned still needs to reinforce or speed up its efforts in this area.
On the basis of a Commission proposal, the Council adopted the country specific recommendations in March 2007. Structural reforms take time to implement and only a preliminary assessment can take place at this stage. On this basis, the report maintains most of last year's country specific recommendations and points to watch.
A full set of the recommendations is available in MEMO/07/569.
What exactly are the changes to the country specific recommendations this year?
In most cases, steps have been taken towards meeting the commitments contained in the country specific recommendations agreed collectively by the Member States last year. However, more remains to be done and most of these recommendations remain in place. In a few cases - Germany, Italy and Spain - the number of recommendations has decreased while for Slovakia, last year's recommendation on tackling long-term unemployment has been replaced with a recommendation to improve the regulatory environment. No Member States have additional country specific recommendations. The conclusions of each country chapter are collected in MEMO/07/569.
What is the evidence that the brighter economic outlook is due to reforms implemented under the Lisbon Growth and Jobs Strategy?
The Lisbon reforms have not been the only factor. But there is strong evidence from the Commission's economic modelling that they have made an important contribution and can make a bigger one in the future. What is more, reforms have helped increase the underlying potential estimated growth rate of GDP in the euro zone by 0.2% since 2005 to some 2.25% in 2007: in other words to improve the long-term prospects for prosperity. A more complete analysis is available in the Annex to the Strategic Progress Report.
Is the Commission proposing recommendations for every Member State?
No. For a small number of Member States [Denmark, Estonia, Finland, Ireland, Luxembourg and Sweden], the Commission did not propose country specific recommendations in its 2006 report. For this year, there have been no major development which would warrant country specific recommendations for these Member States. However, in the country chapters covering these Member States, as in all the others, the Commission points to policy areas on which it will be particularly important to focus over the next couple of years.
What are the conclusions of the chapter on the euro area?
The chapter concludes that the euro area countries have engaged in substantive structural reforms to tackle their economic, social and environmental challenges, although some have responded more robustly to some challenges than others. Although important for all EU Member States, structural reforms are especially relevant for the economies in the euro area. Primarily aimed at creating more growth and jobs, structural reforms also enhance integration and the adaptability of euro area economies and synchronise its business cycles.
Overall, in which policy areas is more progress most needed?
Although there has been some good progress on reducing budget deficits, the opportunity to use the relatively strong growth conditions to reduce structural deficits further has not been fully seized, especially in the euro area.
Europe is still lagging behind other leading economies both in investment in information and communication technologies and in terms of their use to enhance productivity.
Opening up network industries and services to competition has been slow and important obstacles to market entry remain. Some Member States lag behind with the implementation of internal market directives.
There have been important steps forward in implementing the EU’s better regulation agenda but some Member States need to do more to reduce administrative burdens and improve the business environments.
Almost 6.5 million new jobs have been created in EU-27 in the last two years with 5 million jobs expected to be created up to 2009. Yet, many labour markets remain segmented, with well-protected insiders and more precarious outsiders on contracts with uncertain prospects.
About half of the Member States have developed - or are developing - policies on the basis of a flexicurity approach. Yet the policy response remains fragmented.
While it is encouraging that Member States have now set ambitious targets to increase R&D spending, the real proportion of GDP spent on R&D in the EU has failed to keep up with recent stronger economic growth and decreased from 2.0 % of GDP in 2000 to 1.85 % of GDP in 2006, with large differences between Member States. This moves the Community further away from the EU target of 3%, although recent policy reforms aiming at boosting R&D spending will take some time to feed through.
Which Member States are doing best?
The Commission does not want to take a "Eurovision song contest" approach and rank Member States. This serves no purpose and would depend on subjective judgements, given that it is not current performance but future potential that is key. But it is encouraging to note three trends that have continued since last year.
First, those Member States which rank highly in current international competitiveness tables, for example the Nordic countries and Ireland, are resisting the temptation to rest on their laurels. They are aware that continuing to reform now is the key to maintaining their performance in the future.
Second, those larger economies whose success is particularly important in creating prosperity elsewhere in the Union – France, Germany, UK, Italy and Spain - have all moved forward, albeit from different baselines and at different stages of implementation.
Third, while most still have much work to do to catch up, those Member States that joined in 2004 are also moving forward, with visible increases in their standard of living, though again the pace of progress varies.
Which Member States are doing badly?
All Member States deserve credit for having made progress, often in challenging political circumstances. It would not be accurate or useful to point the finger and say a particular Member State is doing badly. But as in previous years there are big differences in the depth and pace of reform. It is crucial over time to close this gap because all of our economies are interdependent. Prosperity in one creates prosperity in others. We are moving gradually in the right direction, towards a situation where every Member State performs to its full potential, but still have a long way to go.
Has there been progress in investing European regional funding in achieving Lisbon Strategy goals?
Yes. Programmes analysed for the Communication "Regions Delivering Lisbon through Innovation and Cohesion Policy 2007-2013", which forms part of the package, are an encouraging statement of intent: less developed regions (Convergence Objective) plan to invest 65% of funds available to them on Lisbon-oriented priorities, and the others (Regional Competitiveness and Employment Objective) have earmarked 82% of their investment, exceeding targets in both cases. Innovation is a major theme, and features strongly in Cohesion Policy programmes. Keeping up the momentum in policy debate on innovation is a key objective.
What happens after the Strategic Report?
As usual, the Report will be submitted to EU leaders at the Spring European Council which will adopt conclusions on the way forward. The European Council is asked to endorse the country specific recommendations and the reaffirmed Integrated guidelines which will then be formally adopted by the Council. The Lisbon Strategy for Growth and Jobs is built on a partnership approach, which recognises that, to address the common challenges, each level needs to play its full part. Therefore the action proposed in the Report will need to be implemented both by Member States and at Community level, where the new Community Lisbon Programme already reflects this need.
Further Implementation Reports will be prepared by Member States by October 2008. The Commission will present its 2008 Annual Progress Report around the turn of next year.
Part Two: Background
What is the Lisbon Strategy for Growth and Jobs?
The European Union's Lisbon Strategy to modernize Europe was first agreed in 2000 and relaunched in 2005, with a clearer focus on growth and jobs. The Strategy is based on a consensus among Member States and organised around 3 year cycles. It is now making a strong contribution to Europe's current economic upturn.
If the EU makes the right economic reforms now, it can secure a prosperous, fair and environmentally sustainable future for Europe. It can ensure that our economies are well positioned to take advantage of the opportunities offered by globalisation. It can put Europe in a strong position to cope with demographic changes that will mean more older people and fewer young people of working age in our societies.
How does the Lisbon Growth and Jobs Strategy work?
It is based on a close partnership, with a clear division of responsibilities and a strong emphasis on maximising the synergies between the Community and the national levels and between different economic policy areas. Member States undertake reforms at national level based on National Reform Programmes presented in 2006 and based on the policy guidelines ("Integrated Guidelines") agreed collectively by all Member States in 2005 and due for review in 2008. These National Reform Programmes cover a three-year period.
Each year, Member States produce reports on the implementation of their National Reform Programmes. The latest implementation reports were presented in October 2007.
All Member States have appointed Lisbon Co-ordinators ("Mr or Mrs Lisbon") charged with driving the strategy forward in their own Member State and involving stakeholders in its implementation. The Commission assists, monitors and assesses this national level reform process.
In conjunction with this, a programme for European level reform – the Community Lisbon Programme - is implemented.
Furthermore, the 2006 Spring European Council agreed four priority areas as the pillars of the renewed Strategy (knowledge and innovation, unlocking business potential, investing in people and modernising labour markets, energy/climate change).
It also agreed on a number of actions, such as making it possible anywhere in the EU to start-up a business within one week or less. Progress on these actions has been good.
In March 2007, the Spring European Council took a further important step by endorsing country specific recommendations – proposed by the Commission in its December 2006 Progress Report - for the first time. These are Treaty based. By endorsing them, Member States have agreed collectively on what each needs to do. The Commission's assessment of progress at national level focuses - this year and in future – particularly on the implementation of these recommendations and of the other "points to watch" included in the country chapters.
What is the structure of this year's Report? What are the components of the package?
The first part of the report to the 2008 Spring European Council sets out the Commission's proposals for taking the Lisbon Strategy forward during the next three years.
The second part consists of an assessment of progress made by each Member State (and the euro area) in the implementation of its National Reform Programme (NRP) and country-specific recommendations, as adopted by Council.
The Commission’s Strategic Report is based on its assessment of the Member States autumn 2007 Implementation Reports, on its general monitoring of progress and bilateral contacts with Member States, and on the Commission’s own review of progress with the Community Lisbon Programme.
A detailed assessment of progress by policy area can be found in a companion document. The Lisbon package furthermore contains:
Why is this year's report called a Strategic Report, and not an Annual Progress Report as in previous years? What are the differences from last year?
This report marks the transition to a new cycle in the implementation of the Lisbon Growth and Jobs Strategy, from 2008-2010. It therefore takes stock of progress over three years, draws lessons and proposes policy lines for the next few years – in other words, it has an enhanced strategic component. It also includes proposals for the reaffirmation of the Integrated Guidelines – which have worked well as broad drivers of policy - and for changes to the text accompanying those guidelines, to reflect the need to update the Strategy in the light of experience so far and to respond to changing circumstances.
The other differences from last year are that the Report for the first time includes country assessments for Bulgaria and Romania, and that it is accompanied by a renewed Community Lisbon Programme.
What are the main achievements so far under the Community Lisbon Programme?
The first Community Lisbon Programme for 2005-2008 generated significant results. For example, significant progress has been made towards improving the legal framework of the single market, through the adoption of the Services Directive and the implementation of the Financial Services Action Plan. The Commission has also successfully driven forward its better regulation agenda to cut unnecessary costs and remove obstacles to innovation.
Substantially greater amounts of Community funding have also been made available for growth and jobs. The new regulatory framework for the Cohesion policy programmes will make some €210 billion available for investment in growth and jobs over 2007-13, an increase of over 25% compared to 2000-06. Overall 87 actions of the 102 announced in the original 2005 CLP had been delivered by mid-2007.
How is it possible to assess the performance of "new" and "old" Member States, or large and small ones, according to the same criteria?
It is not possible and we have not tried. We recognise that each Member State has a different starting point and different traditions. We are not assessing their current economic performance as such but progress in implementing and reinforcing their National Reform Programmes – in other words in getting in shape for the future, to take advantage of the opportunities of globalisation and to meet the challenges of ageing populations. Thus, the assessment for each Member State is based on the implementation of their own National Reform Programme.
Is there a correlation between the number of recommendations and how well the Commission thinks a Member State is doing?
Clearly the Commission only proposes a recommendation where it thinks that an important challenge exists and that the Member State concerned needs to step up its efforts to meet that challenge. So if there are several recommendations, this means there are several important challenges. But there is not necessarily a direct correlation between the number of recommendations and the overall level of progress.
Even for Member States with no recommendations, the Commission points out areas where there a particular effort is needed and which therefore could give rise to recommendations in the future. A Member State with one recommendation in a key area may need to address that area particularly urgently, to avoid progress in other areas being held back. And while a Member State with several recommendations clearly faces a range of tough challenges, it may also be doing well in some areas. The country chapters identify significant strengths in every national programme.
Many people are not aware of the Lisbon Strategy. What can be done about this?
The Commission will continue to reinforce its efforts to get the message across – directly or in cooperation with stakeholders - to a wide public that the growth and jobs strategy is a positive vision of wider opportunity, not a message of doom, gloom and austerity.
But for this to succeed, it is essential that Member States also make stronger efforts to inform stakeholders and citizens of the importance of the Growth and Jobs Strategy, and in particular to demonstrate that as a result of the interdependence of Europe's economies, successful reform in one Member State contributes to prosperity everywhere. All Member States, even those already in the vanguard of reform, have a strong interest in the success of the Strategy.
Within the context of the implementation of the "Communicating Europe in Partnership" Agenda (see IP/07/1435), and in particular in taking forward voluntary management partnerships with those Member States who wish to do so, the Commission will encourage Member States to give a very high priority to the Growth and Jobs Strategy. It will do the same in working with other EU institutions, notably the European Parliament, the Economic and Social Committee and the Committee of the Regions.
It will also continue to lay a strong emphasis on consultation, ownership, and communication in evaluating progress at national level. This aspect is covered in every country chapter.
Why is the Strategy now more clearly focused on Growth and Jobs?
Growth is not an end in itself, but it is a prerequisite for being able to maintain and increase Europe's prosperity and thus for preserving and enhancing our social models.
Growth must be sustainable – while there is sometimes a short-term cost to protecting the environment, in the long term the costs of not tackling environmental issues such as climate change would be far greater.
We need more jobs for two reasons – first because far too many people's lives are still blighted by unemployment and second because only by getting more people into work can we ensure that our societies cope with demographic change. Older populations mean higher pensions and health care costs and those need to be financed by the working population.
In a nutshell, what are the most important steps for achieving more jobs and growth in Europe?
There are many pieces in the jigsaw puzzle. It is the whole policy mix that counts. We need to make Europe a prosperous, low-carbon society.
That means budgetary sustainability, better regulation and the right tax and benefit systems. We need to improve education and training to allow more people to reach their full potential, for their own sake and that of society as a whole. We need to invest in research to maintain our comparative advantage relative to competing regions.
We need more competition to make sure that research feeds through into real innovation, as companies strive to stay ahead in highly competitive markets. We need to make our economy more adaptable to change and more resistant to external shocks. This need has been further highlighted by the recent trend for high commodity prices and by financial market instability at global level.
We need more people of all ages in employment to finance social spending as our populations age. We need to use energy more efficiently and sustainably and to negotiate better with countries which supply us with energy. We need to tackle climate change at home and act globally to ensure that responsibilities in this are taken worldwide.
All of these things require European and national level reforms.
What are the main targets under the Growth and Jobs Strategy?
Before the 2005 relaunch, there were too many disparate targets. Although Member States are encouraged to set their own targets in several areas, we now have a streamlined and simplified process with only two EU level headline targets,: investment of 3 % of Europe’s GDP in research and development by 2010 and an employment rate (the proportion of Europe’s working age population in employment) of 70% by the same date.
Of course, these are not the only issues that matter – but achieving both is absolutely central to getting our economies into shape for globalisation.
And there is progress towards both of them. All Member States have set ambitious R&D targets and most have undertaken important reforms to help them get there. If all of these targets are met, the EU will reach an R&D level of 2.6% of GDP in 2010 (up from 1.9% in 2005). This would be a significant improvement even if the key EU target of 3% (with the private sector contributing 2%) is only reached later.
Employment rates are expected to rise to around 66% in 2008 compared to 63% in 2004. This leaves us with more work to do to reach the ambitious 70 % target for 2010 but remains important progress.
Has the management of the Strategy always worked in this way?
No. The Strategy was relaunched in 2005. Before that there was more complicated system with a plethora of different targets and reporting mechanisms and fewer synergies between the different strands. Some progress was made but overall the results were not fully satisfactory. So the Commission proposed a relaunch, based broadly on the recommendations of a mid-term review led by former Dutch Prime Minister Wim Kok. EU leaders agreed to this proposal at the 2005 Spring European Council.
Why do we need a European strategy when many of the necessary measures have to be taken at national level?
Our economies are interdependent. Prosperity in one Member State creates prosperity in others. Sluggishness in one Member State holds others back. So Europeans need to work together to achieve economic reform, sharing policies that work.
In addition, national policies alone are not enough to allow the Growth and Jobs Strategy to succeed. European Union policies are also central to the Strategy. For example, an efficient internal market, the right policies on external trade, the updating and enforcement of EU competition law, well-targeted European research programmes, the effective use of EU Structural and Cohesion funding and the application of EU environmental policies are all crucial to delivering the prosperous and modern society which is the ultimate aim of the Lisbon Strategy. The Community Lisbon Programme sets out the EU-level priorities for the next three years.
What is the Commission’s role in the governance of the Strategy?
First, it proposes the Integrated Guidelines for reform, which are then approved by the Council and form the broad basis for Member States’ National Reform programmes.
Second, in its Annual Progress Report the Commission assesses the content and implementation so far of National Reform Programmes, allowing stakeholders and citizens to see how far each Member State has got.
Third, it works continuously with Member States to help them exchange experience, learn from each other and implement, update, and improve their National Reform Programmes, taking into account the strengths and weaknesses identified in the Annual Progress Report. This role as a catalyst for mutual learning, building consensus that feeds into national as well as European policies is sometimes low profile, but has been central to the Commission's work since the European Community began.
Last but not least, the Commission ensures through its role in driving forward the Community Lisbon Programme that policy making and funding activities at European level best serve the goals of growth and jobs.
What is the link between the Growth and Jobs Strategy and regional policy and the Structural Funds?
The link between the Growth and Jobs Strategy and the Structural Funds is very close and this is clearly demonstrated by the inclusion in this year's Strategic Report package of the communication entitled "Regions Delivering Lisbon through Innovation and Cohesion Policy 2007-2013". This assesses the extent to which new Cohesion Policy programmes aim to move forward the implementation of the renewed Lisbon Strategy, notably by respecting a commitment to earmark funds for growth and jobs.
In a single market, structural and cohesion funding will be spent on procuring works, goods and services from all over the EU. That will benefit all Member States and not just those directly receiving the most substantial amounts of structural funding.
The Commission continues to encourage Member States to ensure that regional aspects are fully taken into account in National Reform Programmes and that regions are consulted on the development of the programmes. This is the case in most Member States.
Is the EU maintaining its target of becoming the most competitive knowledge-based economy in the world by 2010?
The key aim is getting into a rhythm of high sustainable annual growth and low unemployment by 2010. If, for example, the US does even better that will not mean the EU strategy has failed. Rather, it will be good news for us all. Nevertheless, it is crucial that Europe closes the competitiveness gap with the US – that goes hand in hand with getting the EU in shape to benefit from globalisation.
What matters in the end is that we in Europe can maintain and enhance our quality of life – and that of our children and grandchildren – in the context of globalisation, demographic change and environmental challenges. That is what the Lisbon Strategy is ultimately about. And it is working.