Europe's New Economic Strategy: A Miracle Cure?

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Benjamin Rondel / Corbis

The past couple of years haven't been kind to the European Union: it's been battered by the recession, buffeted by the Greek debt crisis and bypassed by a host of dynamic, emerging nations. The E.U. is desperate for a magic potion to revitalize its creaking economy, but it may have to settle for something less dramatic. On Wednesday, the European Commission will unveil a 10-year plan outlining the first tentative steps toward forming a common economic policy. The "Europe 2020" strategy is being touted as a way to boost competitiveness and growth over the next decade. Skeptics, however, warn that it is no better than a placebo for the curmudgeon European patient.

The E.U.'s recovery from recession has been fragile and slow — the bloc is only forecast to grow by an anemic 0.7% this year. José Manuel Barroso, the European Commission President, warns that Europe risks a "lost decade" of stagnation and decline if it does not act boldly now to modernize its model of socially inclusive capitalism. The Europe 2020 plan focuses on honing the E.U.'s technological edge, especially in green industries, and on improving higher education. And it sets key targets for E.U. member states, including raising the overall employment rate from 69% to 75%, boosting investment in research and development from 1.9% of E.U. gross domestic product to 3%, and lifting the percentage of 30-34-year-olds with a university education from 31% to 40%.

But there are already doubts about whether a 10-year bureaucratic plan can really turn the E.U. economy around. "These strategies are full of beautiful but nebulous words," says Jacques Pelkmans, a senior research fellow at the Center for European Policy Studies (CEPS), a Brussels-based think tank. "We shouldn't expect Chinese growth rates, and we should not raise hopes we cannot meet."

Indeed, the Europe 2020 strategy had a similarly ambitious predecessor that failed to deliver: the ill-fated Lisbon agenda, which was adopted with fanfare by E.U. leaders a decade ago with the aim of transforming Europe into "the world's most competitive and dynamic knowledge-based economy" by 2010. But the bloc fell far short of its goal of overtaking the U.S. and Japan, and even failed to meet its self-imposed economic targets. For example, that plan also called for E.U. research and development spending to increase to 3% of GDP, but only Sweden and Finland currently meet that threshold.

There were a number of problems with the Lisbon agenda, such as the fact it had too many targets and there were political splits on issues like opening up labor markets. But another issue was that E.U. leaders were simply unwilling to overhaul their economies — and there was no enforcement mechanism in place to put them into line. Ann Mettler, head of the Lisbon Council, a Brussels-based think tank, says European leaders have been too cautious about reform, backing off, for example, when it comes to tackling energy oligopolies and inefficient, formerly state-run telecom operators. "We are in a state of crisis," she says. "We can't just have a battery of lofty goals and feel-good measures. We need political will to address Europe's real shortcomings."

This time around, there are growing calls for compliance mechanisms to be built into the strategy. They have become louder as the euro crisis has unfolded in recent weeks, with many officials saying that tougher fiscal oversight might have prevented the collapse of Greece's public finances. "We cannot have a pick-and-mix strategy, allowing everyone to do the easy parts and leave the real challenges to one side," Barroso told the European Parliament last week. "We need strong and true coordination in the economic field."

Barroso sees this is a crisis-driven leap into further European economic integration. Euro-zone finance ministers are already putting Greece's budgetary policies under more scrutiny than any member state has ever had to endure — and there are now suggestions that similar measures could be taken with economic policies at the E.U. level. In January, Spanish Prime Minister José Luis Zapatero even called for countries to face "corrective measures" if they under-perform economically, although that idea was quickly shot down by Germany, Britain and the Netherlands. Herman Van Rompuy, the new E.U. President, put forth a more nuanced proposal last month, saying E.U. leaders need to collectively take on a role of economic governance when they meet at summits. "The financial and economic crisis obliges us to take steps on this road," he said.

The Europe 2020 strategy is likely to be put through a number of changes before it is formally endorsed later this month. But whatever it ends up saying, it is expected to be roundly heralded by E.U. leaders as their miracle cure. Whether they are ready to swallow the medicine they have prescribed themselves remains to be seen.