Analysis: Eurosclerosis grips EU economy

By GARETH HARDING, UPI Chief European Correspondent   |   Jan. 22, 2004 at 1:27 PM

BRUSSELS, Jan. 22 (UPI) -- The news just keeps on getting gloomier for European Union leaders already battered by a year of sniping over Iraq and their failure to agree to the bloc's first-ever constitution last month.

Less than six weeks after EU governments ripped up the eurozone's rulebook, the European Commission Wednesday confessed the 15-member club had no chance of overtaking the United States to become the world's No. 1 economy.

In a startling admission buried in its annual economic progress report, the commission conceded: "The Union cannot catch up on the United States as our per capita GDP is 72 percent of our American partner's."

The news is a bitter blow to EU leaders who set themselves the ambitious goal of becoming the "the most competitive, knowledge-based economy in the world by 2010" at a summit in Lisbon, Portugal, four years ago.

Presenting a stock-take of the targets to Euro-deputies Wednesday, European Commission President Romano Prodi warned: "Member states do not seem to realize that 2010 is around the corner. Four years after Lisbon it is clear that we are going to miss our mid-term targets."

EU leaders hoped that by 2005, productivity would be rising, unemployment falling, growth surging and structural reforms picking up pace. Instead, the opposite trends appear to be occurring.

Economic growth in EU was a paltry 0.8 percent last year -- its lowest rate in a decade and less than half that clocked by the United States. In terms of per capita gross domestic product, the only EU state to enjoy a higher standard of living than the United States was Luxembourg -- a tiny tax haven with a smaller population than Fort Worth, Texas.

Unemployment also rose for the first time in almost 10 years in 2003, edging up from 7.3 percent to 8 percent. The total employment rate stood at 64 percent, up several percentage points compared to 2000, but still a long way short of the EU's own goal of having 70 percent of adults in a job by the end of the decade.

The major reason for the per capita GDP gulf between the EU and the United States is the ever-widening productivity gap between the world's two-largest economic powers. Whereas U.S. productivity growth rates have risen to above 2 percent, in Europe they hover between 0.5 percent and 1 percent, meaning the average productivity of a European worker is 12 percent below that of his or her American colleague.

If EU member states had stuck to the promises made at Lisbon, the bloc's economy may have been on the mend by now. But the commission notes that, to date, less than 60 percent of the 40-plus laws EU leaders pledged to adopt have found their way onto national statute books.

There has been little or no progress in cutting red tape, increasing investment in research and development and boosting venture capital, the Brussels-based EU executive states. In addition, member states have dragged their feet on long-term structural reforms such as overhauling pension systems and trimming cradle-to-grave welfare provisions.

The Commission's most high-profile solution for kick-starting growth in the EU is to invest over $70 billion over the next 6 years in large-scale infrastructure projects. But business associations say simplistic Kenysian solutions are not the answer.

"European companies, just like (Jonathan) Swift's Gulliver, need to be released from thousands of small constraints that stop them from releasing their economic potential in order to create prosperity for Europe," says Jurgen Strube, head of the European employers federation, UNICE.

EU enthusiasts have traditionally brushed aside criticism of the bloc's dismal economic record by focusing on quality of life issues.

"The EU many not be as competitive as the United States," supporters admit, "but at least it guarantees high level of environmental protection and a certain standard of living for its workers."

Even this is no longer the case, admits the commission in its latest report. 55 million people -- 15 percent of the EU's population -- are at risk from poverty and this figure is expected to increase as unemployment rises and pension systems crumble.

The picture is equally gloomy for the environment, says the EU's powerful law-drafting body. Most member states' policies for protecting the environment are "generally inadequate," the progress report states. In particular, the EU is on course to miss its Kyoto target of cutting greenhouse gas emissions by 8 percent by 2008-12, largely as a result of rampant traffic growth.

Over the next days, many of the EU's great and good will descend on the Swiss ski resort of Davos to lecture participants at the World Economic Forum on the need for economic growth that protects the environment, raises living standards and protects workers' rights.

This lofty talk will no doubt go down well with some political and economic leaders. But to anyone aware of the bloc's dismal failure put its own goals into practice, it will sound like the "Hollow Men" in T.S Eliot's poem: "Alas!/Our dried voices, when/ We whisper together/Are quiet and meaningless/As wind in dry grass/Or rats feet over broken glass/In our dry cellar/Shape without form, shade without color,/Paralyzed force, gesture without motion."

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