Date: 21 March 2005
 
Speaker: Philippe Maystadt, President of the European Investment Bank
 
 
On the 21st of March, the Centre for European Policy Studies hosted a presentation by the President of the European Investment Bank (EIB), Philippe Maystadt, on the theoretical underpinnings of the Lisbon Strategy, its supportive role in the promotion of economic growth in the EU and the EIB’s role in contributing to its success.
 
Philippe Maystadt began his presentation by providing a snapshot of the performance of the EU-15 economy over the past decades. Following World War II, the EU converged with the US in terms of GDP per capita until the mid-1970s. Subsequently, this catch-up came to a halt and the EU’s per capita GDP stabilised at around 70% of the US level. In line with the current potential growth rates, the projected potential growth rates of the EU-15 are also expected to lag behind the analogous US figures, mainly as a result of demographic changes. Under these conditions, the European social model would irremediably be under threat. He recalled that economic growth had never been proclaimed as an EU objective per se, but rather as a by-product of other policies such as the Single Market or the European Monetary Union. The Lisbon Strategy, on the contrary, was the first real discussion of the EU’s growth potential as such.
 
Why did the catch-up with the US cease after the mid-1970s? Prior to this, European countries essentially followed a “convergence model based on imitation, capacity investment and adoption of best practice”. This model no longer applied, as the EU economies were now located on their production possibility frontier, i.e. at their most efficient production. While this strategy still remained commendable for developing countries, industrialised countries – in line with ‘New Growth Theory’ – needed to shift this frontier outwards to achieve higher future growth, by strengthening innovation and adaptability. Maystadt thus underscored the Lisbon Strategy’s anchorage in economic theory. In order to achieve this outward shift, he listed four main categories in which measures had to be adopted: research and development (R&D), diffusion of new technologies, more competitive markets and training of the labour force.
 
Maystadt noted that in terms of public R&D spending, the EU was as committed as the US and Japan, but that private investments were lagging behind. Among the factors explaining this, he identified taxation and – at least in the past – a lack of competition which acted as disincentives for R&D investment. Furthermore, venture capital markets – the potential funds for risky investments – were still poorly developed in the EU compared to the US. Furthermore, the protection of innovation in the EU was still more costly than in the US, a situation that could be alleviated through the implementation of the EU-wide patent. Finally, the EU seemed less attractive for researchers than the US for a number of reasons. There also seemed to exist a relatively strong resistance in the EU vis-à-vis the diffusion and implementation of new technologies, implying foregone productivity gains. In addition Maystadt emphasised the necessity of training the labour force. Contrary to wide perceptions, the proportion of high- and medium-skilled workers in the labour force was considerably higher in the US than in the EU. This was the result inter alia of relatively little spending on higher education in the EU – both public and private.
 
Maystadt conceded that the results of the Lisbon Strategy had been unsatisfactory so far. He attributed this poor performance to an overloaded agenda, poor coordination, conflicting priorities and the absence of ownership. This led to ‘cherry picking’ by national governments, each one deciding to focus merely on selected dimensions of the Lisbon Strategy, rather than its implementation as a whole.
 
The mid-term review proposals made by the Commission and the Luxembourg EU Presidency attempt to address these shortcomings. In particular, Maystadt expected benefits arising from the following proposals: streamlining of the process, which would reduce the number of intermediate objectives; better policy coordination (stemming from the integration of Broad Economic Policy Guidelines and Employment Guidelines); simplified reporting procedure (a unique annual report by member states and the Commission, respectively); and a better application of the subsidiarity principle (recognition that the Union does not take action – except in the areas falling within its exclusive competence – unless it is more effective than action taken at national, regional or local level). Above all, however, Maystadt stressed the importance of an increased national ownership envisaged by the mid-term review proposals, and the attempt to “bring the Lisbon Strategy home to the national political stage”. This was paramount, as structural reforms bore mainly national effects and the argument of externalities, which justified policies at the EU level, was less applicable here. Nonetheless, the Commission’s role could be fruitful in collecting and disseminating experiences gathered in individual countries.
 
Maystadt cautioned, however, that despite these reform proposals, the success of the Lisbon Strategy was not guaranteed. In particular, the general public harboured doubts about the necessity of structural reforms and some interest groups were outright opposed to them. Moreover, the political cost for governments seeking re-election could be substantial, as the concrete benefits of the reforms were often uncertain and unfolding in the long-term. Indeed, he recognised that short-term effects of reforms varied in sign and in magnitude according to the sector in which they were implemented. As a result, he called for a broad reform approach, so that negative short-run effects of partial reforms could be offset by the positive effects of others. Furthermore; a better explanation of the need for reforms was imperative to ensure their acceptance.
 
He finally addressed the role of the EIB in supporting the Lisbon Strategy. In particular, it was targeting its activities more directly towards R&D and human capital. Regarding the latter, it promoted both the supply (upgrading education infrastructure) and the demand (improved access to education). Furthermore, it actively supported diffusion of technology and entrepreneurship by providing venture capital.
 
See the slides of Mr. Maystadt’s presentation
Read the full text of Mr. Maystadt’s speech