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Europe 2020

1. Background

Europe 2020 – an overview

The European Union plans to steer a new economic course over the coming decade, with the launch of Europe 2020, a ten-year plan for jobs and growth approved by EU leaders in June 2010. The strategy is billed as a plan for “intelligent, sustainable and inclusive growth”, with particular emphasis on structural reforms, financial reforms and economic governance.

Europe 2020 replaces the Lisbon Strategy, another ten-year economic plan launched in 2000, which largely failed to achieve its objective of turning the EU into the “most competitive and dynamic knowledge-based economy in the world”. It comes at an especially pivotal time, just as the EU attempts to lift itself from the wreckage of the global financial crisis, which struck in 2008. Across the bloc, GDP contracted by 4% in 2009, around 4 million jobs were lost and public debt rose to unprecedented levels. Recovery is expected to be uncertain and fragile.

This period of economic gloom occurs just as the EU is grappling with a number of formidable challenges, including a rapidly ageing population, energy supply fears and climate change. It also coincides with important shifts in the world economic order, most notably the rise of highly-competitive emerging economies such as China. A 2009 report funded through the EU's 7th Framework Programme for research, predicts that Asian countries could overtake the EU in terms of research and innovation over the next two decades. The need for a solid plan of action that will lift the bloc out of the doldrums and set it on track for sustained growth is therefore crucial.

Europe 2020 revolves around 10 ‘integrated guidelines’: 1. ensuring sustainable public finances; 2. addressing macroeconomic imbalances; 3. reducing euro area imbalances; 4. furthering the digital economy; 5. improving resource efficiency and reducing greenhouse gases; 6. modernising the industrial base; 7. increasing labour market participation; 8. developing a skilled workforce; 9. improving education; 10. promoting social inclusion.

It features five hard targets, namely raising labour market participation rates, increasing investment in research and development, tackling climate change and energy supply issues, improving education and lifting millions out of poverty.

Plus ça change – Lisbon revisited?

Sceptics could be forgiven a sense of déjà-vu. Europe 2020 is semantically very similar to the Lisbon Strategy, calling for the creation of an ‘innovation union’ that will tackle the bloc’s major health, environmental and resource problems. Even the research targets are the same, with the bloc aiming to spend the equivalent of 3% of its gross domestic product (GDP) on research and development by 2020.

There is little question that the Lisbon Strategy failed. Often criticised for being long on ambition and short on realism, it has been an easy target for criticism over the years. This is mainly because it had no means other than peer-pressure and benchmarking – the so-called Open Method of Coordination - to achieve its objectives, a point made by Spain’s prime minister, José Luis Rodriguez Zapatero, in January 2010. With no legal muscle and scant political backing from member states, it appears to have been doomed to mediocrity from the start.

The Lisbon Strategy missed a number of its self-imposed targets. For instance, only two countries - Sweden and Finland - managed to hit the 3% target for research and development, with the 27-member bloc as a whole spending 1.9% of GDP, compared with 2.76% in the United States and 3.44% in Japan. At the same time, it is worth considering that the strategy would have focused policymakers’ minds on reforms and helped channel more public funds into research. The recent financial crisis would also have reversed the progress made by some countries.

Two years after the outbreak of a financial crisis that is still savaging a number of debt-laden member states, it is clear that the EU cannot afford a second lost decade. If Europe 2020 is to avoid the luckless fate of its predecessor, it will need the legal means to enforce its wide-ranging targets, whether this be in terms of imposing penalties or offering incentives. The launch of the strategy has sparked a tug-of-war over the European Commission’s role in its implementation - in other words the powers that the executive should have at its disposal to compel member states to stick to targets.

Debating governance

Much hope is being pinned on Europe 2020, the centrepiece of José Manuel Barroso’s second term as Commission president. But, as member states begin preparing national reform programmes for adoption by the end of 2010, there is little indication that the strategy will have more legal clout than its predecessor.

It is a prickly issue, one that has sparked heated debate among EU member states and EU institutions. One of the main issues at stake is whether Europe 2020 should be based on intergovernmentalism (as was the case with the Lisbon Strategy) or whether the Commission should be given powers to police reforms under the so-called community method.

The Commission’s proposals, published in March, appear to take the former approach, a move that has prompted a backlash from the European Parliament. The Liberal group in Parliament (ALDE) has vowed to block elements of Europe 2020 unless the approach is beefed up substantially. Parliament’s Socialist & Democrats group could follow suit.

In the first half of 2010, the Spanish Presidency of the EU floated the idea of introducing sanctions and incentives, but the idea did not make it into the Commission’s proposals. ALDE leader Guy Verhofstadt, the former prime minister of Belgium, continues to advocate a “sticks and carrots” approach, with additional structural funds awarded to countries delivering results and corresponding cuts for those missing the mark.

Public finances have also proven to be a controversial point, particularly given the urgency of debt problems faced by a number of countries, such as Greece and Italy. Member states such as Germany have expressed wariness about plans to scrutinise public finances in tandem with national reform programmes at the highest levels of EU governance, as recommended by Herman Van Rompuy, the president of the European Council, in February 2010.

The Commission has signalled that the Lisbon Treaty will allow it to pull up member states on poor performance. Under Article 121.4 of the treaty (in force since December 2009), the executive has the power to issue warnings and policy recommendations to member states that fall behind on economic targets agreed at EU level. Whether it will actually wield this stick remains to be seen.

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