Date: 27 November 2006

Speaker: Iain Begg, Professor, London School of Economics and Political Science, Associate Fellow, CEPS

Chair: Jorgen Mortensen, Senior Fellow, CEPS

The Lisbon strategy was set up in a meeting of European Council held in Lisbon on March 2000. It has the goal to create a powerful growth and jobs engine in Europe. A broad series of common objectives were established, to focus the attention of national governments and to foster a process of reforms in all of the European economies. To achieve these objectives, a new mechanism, the open-method of coordination, was also introduced.

Several arguments highlight the need for increased coordination of the different approaches followed by every member state:

Firstly, it needs to be stressed that in an integrated economy the reforms made by one government generate positive spill-over effects also for other economies, hence structural policies have the crucial feature of being mutually reinforcing.

The typical example is represented by fiscal policy. Sound finances in many member countries avoid undue pressure on monetary policies so that even states confronted with large deficits can benefit from low interest rates in the euro-area. The same argument is valid for reforms aimed at increasing labour market effectiveness, which are also likely to increase labour supply mobility across countries and regions.

Moreover, the coordination is supposed to boost government efforts to meet the targets set by the Lisbon strategy and to avoid free-riding by single member states.

Another positive consequence is the policy-learning effect, i.e. the fact that member states can model and improve their own policies on the basis of the experience deriving from reforms implemented in other countries.

Usually, the outcome associated to structural reforms can be described by a j-curve. Indeed, in any given country in many cases structural reforms lead in the short term to political tensions and to a worsening of the economic performance with respect to the “status quo”, whereas in the medium to long-term they ensure significant advantages.

The Lisbon strategy was launched in a period of strong average growth (about 3%), while the following years were characterised by a huge slowdown in the growth rate of many E.U. countries. This circumstance, associated to the presence of many different objectives and elusive targets rendered the few actions undertaken by governments rather ineffective and most of the Lisbon’s goals are far from being reached, at least by the majority of the countries involved in the programme.

The re-launch of the strategy was intended to address some of the shortcomings which emerged from the first years of application of the programme. Lisbon I provided over 100 aims and goals, included in broad economic policies guidelines regarding macroeconomic and supply-side reforms as stressed in the Maastricht Treaty, while employment guidelines received particular attention in the Amsterdam Treaty.

Lisbon II summarised them in 24 integrated guidelines, 6 regarding macroeconomic issues, 10 in the field of macroeconomics and 6 focusing on employment strategy. The energy policy has been added to the strategy, while the social and environmental dimensions, present in the previous agenda, are addressed in a separate programme. The main headline goals in Lisbon II are now growth and employment.

During his presentation, Prof. Begg emphasised that increasing the degree of ownership will be a key factor in making the strategy successful. In this respect, tackling information-deficit over the Lisbon agenda will have to become one of the priorities. The issue needs to receive more consideration from the media, and the commitment of governments to bring the main reforms into the public debate is also crucial.

From a different point of view, the effectiveness of the institutional set-up needs to be enhanced as well. The first reviews of the National Reform Programmes carried out by the European Commission are not very rigorous. They contain rather similar remarks for the different member states, and they all appear to be rather bland, probably in order not to alienate governments and to persuade them to improve on-going policies and to undertake new initiatives.

Furthermore, the mechanism of peer-review does not seem to be strictly applied, as not enough time is dedicated to the assessment of each plan, and the role of the European parliament also remains too marginal. The countries that have made more progress in implementing structural reforms are either the ones facing deep economic decline (so that reforms were regarded as vital) or countries were the good performance of the economy makes them more acceptable. As it happens, most of the states are stuck in an intermediate position and the reform process goes ahead very slowly.

In order to make Lisbon more effective, another priority would be the creation of a mechanism of incentives and even sanctions by linking, for instance, the results achieved in meeting the Lisbon targets to the state’s contributions to the EU budget.

Another factor of weakness is related to the propensity showed by governments to focus their efforts on some of the guidelines only, usually the easiest ones to fulfil, while many others are neglected. One way of stemming this malpractice could have been the use of national recommendations made by the Commission, but in 2005/06 there was a clear political choice to avoid such procedure. An alternative could be to use the OECD approach, which consists in selecting and monitoring a few key priorities.

To conclude, Prof. Begg stressed that the assessment of the Lisbon agenda is no longer an issue, as there is a general agreement on the diagnosis. Now the fundamental challenge will be its implementation. This will require concerted actions by all the stakeholders involved in the process. Lisbon II represents a positive step, but further consolidation is still needed.

During the ensuing debate, Mr. Mortensen stressed the importance of overcoming bilateral confrontation between the single member states and the Commission, which could be achieved by moving towards a process where both European parliament and national parliaments are more involved. Various other questions were raised by the audience about the (perceived) lack of concreteness of the Lisbon agenda, and its higher complexity. Some voiced concerns over the opportunity to exclude the social dimension from the strategy.

Click here to see the slides of Prof. Begg's presentation.