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Mr Frits Bolkestein

Member of the European Commission in charge of the Internal Market and Taxation

The EU's economic test: Meeting the challenges of the Lisbon strategy

The 17th Annual State of the International Economy Conference, organised by the Institute of Economic Affairs

London, 19th November 2001

Ladies and Gentlemen,

Ideas have consequences. I have always been persuaded of the truth of this statement and so it was only logical that, as a budding young MP (well, young, I was a sprightly 45 year-old), I decided to take a subscription to the publications of a free market research institute which at that time was very much at the forefront of the battle of ideas. That research institute was the IEA and I owe it a profound debt of gratitude. The Institute and its authors, many of them Nobel laureates, have equipped people such as myself with the intellectual tools to fight, and win, the great political debates of the eighties and nineties.

In a sense, the work of the IEA helped British society to return to its original destination of liberty under the law. The British have a long history of commitment to this ideal, and, if necessary, they have always been willing to take up arms to defend it. This ideal, your ideal, our common ideal, of a society based on the greatest possible extent of personal freedom still compatible with the equally important notion of an ordered community has lost nothing of its appeal since it was first enshrined in the Magna Carta, many centuries ago.

Obviously, at times such as these, when it seems our very way of life is at risk from the threat of terrorism, the single most important test we face is whether we are willing and able vigorously to defend those freedoms which underpin not just our markets but our society. This means attacking and destroying the terrorist networks which pose such a threat. That is obviously mainly a military and diplomatic challenge. But not exclusively. Much has also been done to attack the funding mechanisms of those networks. The Commission has worked closely with the Member States to draw up a list of measures which would help to achieve that particular aim. My own Directorate-General has been instrumental in producing a directive on money laundering which should help to put the squeeze on terrorist funds.

Obviously most of the tests and challenges under discussion today are not involved in these sorts of 'high politics' life-or-death questions. But that is not to say that they are not of fundamental practical or political importance. One such test is provided by the arrival of the Euro on the first of January 2002, a mere six weeks from now.

I am aware that the tests referred to in the title of this conference are in fact the five economic test formulated by the Chancellor of the Exchequer to help inform the British public on the question of possible British entry into the Economic and Monetary System, or in popular shorthand: the Euro. Metaphors of buses, trains and bicycles have been used to describe the British situation vis-à-vis the project of the EMU. I for one don't like to engage in the use of any such imagery, which tends to be inappropriate at best and misleading at worst. I would merely observe that the Euro is a reality, that as of the first of January 2002 Euro-notes and coins will be in people's pockets, and that financial markets, business communities and policy makers throughout Europe and beyond will treat it as a given that the Euro is here to stay. With or without Britain that is for the British to decide.

The Euro will help to put the spotlight on the many obstacles on the road ahead: financial markets still fragmented; companies and intermediaries still faced with barrier after barrier; investors still either reluctant or unable to invest across borders.

The area of the completion of the Single Market is one where I think Britain is leading the debate in Europe. The British seem to have a keen eye for the overriding interest of a properly functioning Single Market. And I am glad that, together with the European Commission, the British Government has played a leading role in developing a programme of ambitious micro-economic, supply-side structural reform measures which were first agreed upon in Lisbon in the spring of last year. This reform package is generally referred to as the Lisbon process and its stated aim is that the European Union must become the most competitive economic area in the world by the year 2010. That is, ladies and gentlemen, a mere eight years, one month and eleven days from now. And counting. Another serious test that we have set ourselves.

The Commission has delivered on all major commitments contained in the Lisbon package, and it will continue to play its part. The Heads of State and Government initially also showed a clear willingness to take the difficult decisions that the new economic situation requires. Unfortunately, in the follow-up and implementation, Member States have sometimes been less than enthusiastic to turn declarations into actions. Old protectionist reflexes tend to block progress on a number of key files.

The Community patent is a prime example of an area where Member States risk failing to live up to the Lisbon agenda. Heads of State and Government wanted the Community patent to be agreed upon by the end of 2001. They underlined that it is a key instrument to improve the competitiveness of European industry vis-à-vis its American and Japanese counterparts. European industry asks for an affordable patent which is user-friendly and legally secure. The Commission produced a proposal over a year ago, which was applauded by industry. However, now, November 2001, fifteen months after the Commission made its proposal and two months before the expiry of the Lisbon deadline, the Council of Ministers is in danger of either having to face failure or of watering down the Commission's proposal to such an extent that industry may wonder whether the game is worth the candle.

The Commission is doing its utmost to assist the Belgian Presidency in reaching a satisfactory compromise. The mistake of creating a patent, which is unusable, has been made once already. The EU cannot afford to make the same mistake again. In my view, a bad Community patent is worse than no Community patent. This is a subject on which there cannot be a compromise at any price.

A good example of a subject where corporatist reflexes have blocked progress on the implementation of the Lisbon package is the cross border take-over directive. In this case, vested interests, by stirring up opposition in the European Parliament, managed to block progress on a deal the fifteen MS had already signed up to in an earlier stage. Nationalist calculations and corporatist atavism tend to override the interests of consumers and businesses time and again.

The basic issue at stake was whether management would have the right to put in place defensive measures if shareholders had not approved them. The proposal, arrived at after twelve years of discussion in the Council of Ministers, considered prior shareholder approval to be of the essence. After all, it is the shareholders that sell, not the management per se. The interests of management are not always the same as those of shareholders. But it was not to be. That does not mean, however, that the Commission has given up on this directive. A Committee of legal experts is currently investigating the main outstanding issues. Following their report, the Commission aims to table a new proposal to Council and Parliament as soon as possible.

On the files concerned with the liberalisation of utilities, the going is equally tough. No final date has yet been agreed for the liberalisation of the gas and electricity markets. On the liberalisation of postal services, for which I am personally responsible, progress is slow. Very slow. It sometimes feels as if I'm wading through treacle. The current package, agreed upon by Member States last month, still has to pass the European Parliament, where negotiations are going to be as hard as they were with Member States. The original proposal, which was in line with what was agreed upon in Lisbon, will be raked over not just once, but twice.

Obviously, not everything is going wrong. On the Financial Services Action Plan, which contains 42 measures all aimed at the creation of a deep and liquid financial market in Europe by the year 2005, we are making steady progress, though here too we have our problems, for instance on issues like cross-border payments, pensions and prospectuses. But generally speaking we are making real progress here.

On the whole, however, the European Union tends to present an unfortunate fuzzy image of itself to the outside world. On the one hand it loudly proclaims a magnificent ambition. On the other it shies away from biting the bullet. Corporatist reflexes and economic nationalist sentiments throw up one obstacle after the next, making it very difficult to fulfil the promises agreed upon in Lisbon. As I've said before: Member States are strong on rhetoric, weak on actions. There's much poetry but precious little motion. The clock is ticking, however, and it will be 2010 before we know it. At the next economic reform summit of the European Council, in Barcelona in March of next year, we are already two years into the process. Unless there is this fundamental change in attitude on the part of Member States and Members of the European Parliament, the ambitious target set out in Lisbon will be very difficult, dare I say it impossible to achieve.

This seems a challenge in particular to the IEA and similar research institutes in other Member States: you can help the European Union deliver on its promises by winning over the hearts and minds of Member States' government officials and Members of the European Parliament to the cause of the free market. In the words of the author of one of your recent pamphlets: it's time for economists to start helping the European everyman.

It is a sobering thought that nearly fifty years after the IEA first began its work, it finds itself in a sense back at the beginning, having to fight the same old battles all over again, though in a new setting, and with different opponents. I'm pleased to see that they are well aware of the magnitude of the task ahead and that, through the reissuing of a number of classic texts and the publication of a series of new thought provoking pamphlets from authors like David Henderson and Anthony de Jasay, they are already out there, fighting the good fight.

For your sake, and mine, I hope they win "all over again".

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