THE GUARDIAN

David Gow in Brussels
Thursday November 4, 2004

The report, drawn up by industrialists, trade unionists and business academics under Wim Kok, the former Dutch premier, paints a withering picture of Europe as unable to modernise its ailing economy and ill-prepared for the challenges of declining birth rates and rising life expectancies.

Mr Kok's team, including Niall FitzGerald, Reuters chairman, and Will Hutton, Work Foundation chief executive, wants the European commission to name and shame countries in the 25-strong EU which fail to live up to "national action plans" to implement the much heralded Lisbon strategy.

The EU set itself the target, at Lisbon in 2000, of overtaking the US by 2010 to become the world's "most dynamic and competitive knowledge-based economy... capable of sustainable economic growth with more and better jobs and greater social cohesion and respect for the environment."

The Kok report, to be discussed by EU leaders today, makes plain that Europe is further from reaching that goal than it was four years ago and the growth gap with north America and Asia, notably China and India, has widened. It calls for comprehensive reform of the eurozone's stability and growth pact to make it more geared towards higher growth and employment.

"Time is running out and there can be no room for complacency; better implementation [of the Lisbon strategy] is needed now to make up for lost time," it argues.

Mr Kok said: "Even if every target were to be hit on schedule Europe would not be on safe ground."

With forecasts for eurozone growth being downgraded because of surging oil prices, Mr Kok accused governments of being long on rhetoric and short on action. "This is a credibility test for all involved to see if we can really mean what we say and can deliver what we promise," he told reporters.

His team's 50-page report, designed to stimulate a fresh approach by EU leaders at their spring summit next year, warns that low-wage China and India can already match Europe in quality of goods and services and says that the US threatens to consolidate its leadership in IT and R&D.

By 2050, the EU's working-age population will have shrunk by 18% and the numbers aged over 65 will have risen by 60%, doubling the dependency ratio to 50%, says the report. The EU's potential growth rate of 2%-2.25% will drop, through ageing, to 1.25% by 2040, with GDP per head 20% lower.

Spending on pensions and healthcare will, as a result, rise by between 4% and 8% of GDP by 2050, with the depressed growth rate hitting public finances from as early as 2010.

These problems, the authors say, are exacerbated by the EU's recent expansion to include 10 poorer members and by a decline in average annual growth in output per head and productivity below that of the US. "From holding its own, Europe is now losing ground."

The Kok team argues that Europeans should work more hours on a lifetime basis, with older employees encouraged to stay at work beyond the retirement age, and companies should invest more, especially in R&D.