Opinion of the European Economic and Social Committee on ‘European business competitiveness’
Date: 2004-10-27
Institutions: European Economic and Social Committee
Subjects: European undertaking, competitiveness, economic and social cohesion, economic development, economic policy, entrepreneurship, monetary union, social partners, standardisation, sustainable development

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Opinion of the European Economic and Social Committee on ‘European business competitiveness’

(2005/C 120/17)

On 20 February 2004, the EU Commission president, Mr Prodi, on behalf of the Commission, asked the
European Economic and Social Committee for an exploratory opinion on ‘European business competitive-
ness’.

The Section for Economic and Monetary Union and Economic and Social Cohesion, responsible for
preparing the Committee's work on the subject, adopted its opinion on 20 September 2004. The rappor-
teur was Mr Vever and the co-rapporteur was Ms Florio.

At its 412th plenary session of 27 and 28 October 2004 (meeting of 27 October 2004), the European
Economic and Social Committee adopted the following opinion by 105 votes to 3, with 2 abstentions.

1. Summary

— delays are also mounting up in implementing the Lisbon

strategy on competitiveness.

1.1
Europe is facing increased challenges to its competitive-
ness and is caught in a squeeze between its large industrialised
partners and the low-cost emergent economies. This situation
is accompanied by a comparative growth deficit and a major
shortfall of investment in training, research and the new tech-
nologies, while the relocation of European companies
is
increasing in the face of international competition.

The EESC feels that four things, all interlinked, are vital

1.4
to regaining business competitiveness in Europe:

1.4.1
economic actors, with:

The first priority is to restore the confidence of

However, with its model of society that places value on
1.2
social relations, Europe is not lacking in assets for its business
competitiveness:

— a clearer vision of the European project in its overall envir-

onment;

— its international trade bears witness to its strong involve-

ment in globalisation;

— its enlarged domestic market is now the world's biggest;

— less red tape at European and national

level, with more
being done through socio-occupational self-regulation and
co-regulation;

— its monetary union, despite its persisting limitations, is a

step forward that has no equivalent elsewhere;

— measures to facilitate the setting-up and development of
businesses, e.g. venture capital, training for entrepreneurs,
SME support services;

— its current Lisbon programme consists of economic, social
and environmental reforms that aim, among other things,
to renew its competitiveness in a sustainable manner.

— more support for innovatory European initiatives for busi-
nesses and the active involvement of other socio-occupa-
tional players;

1.3 While some of
these assets are still more ongoing
processes than firm acquisitions, Europe also has handicaps,
which penalise its companies and contribute to its current slug-
gish performances on the growth and jobs front. For instance:

— the legal and administrative environment in Europe does

not provide enough support for entrepreneurship;

— the single market is still incomplete and too many obstacles

persist;

— despite monetary union, there is still no genuine economic

union;

— more skill-acquisition, training and re-training programmes,

especially for older workers.

1.4.2
Another priority is to complete the basics of the single
market. This should no longer be put off to after the deadline
of 2010 fixed in Lisbon — although fine-tuning will be needed
later, which will mean:

— more rigour in transposing EU directives, with governments
made more aware of their obligations in this field; if neces-
sary, EU aid for laggard states may be refocused on making
up transposition delays;

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— taking decisions, too long awaited by businesses, to abolish
double taxation, simplify the EU rules on VAT, create a
simplified European company statute open to SMEs, and
sort out the EU patent;

— making trade safer and more fluid by boosting administra-
tive cooperation, introducing EU inspections of the single
market, unifying customs checks at
the EU's external
borders, greater efficiency and mutual co-operation in the
public services, which in certain cases could also justify
consideration being given to the development of general
interest services on a European scale.

1.4.3 Making EU firms competitive also means developing a
dynamic economic union around the euro using an approach
geared to the deadline of 2010, aiming to boost growth and
jobs with the support of an adequate monetary policy and
involving:

— the gradual, but not unduly slow extension of monetary

union to the new Member States;

— the requirement of a priori and not a posteriori EU vetting of

Member States' draft laws concerning finance;

— an alignment of taxation under conditions compatible with
an economy open to trade and both attractive to investors
and aware of its social cohesion, if necessary by boosting
cooperation;

— a clearer assessment is needed of the real comparative state
reforms concerning the economy and investments
of
to funding, boosting
access
(opening-up of markets,
social
labour market,
(training,
research),
welfare,
investment by enterprises in human resources),
administrative matters (reduction of public sector deficits,
less red tape) and the environment;

social affairs

— reforms need to be better coordinated with the aim of, inter
alia, competitiveness, with more involvement of the EU
institutions and simpler coordination processes;

— the role of the social partners in designing, implementing
and managing reforms needs to be developed and invest-
ments have to be made more attractive.

In conclusion,

the EESC notes that

1.5
the competitive
shortcomings of EU businesses represent the heavy price being
paid today for a Europe which is not enterprising enough,
which is slow to take decisions and adapt to international
changes, which is still unfinished in many areas, which is
lagging behind with its reforms and whose exploitation of its
trump cards is highly inadequate, often faint-hearted, some-
times incoherent, and therefore counter-productive. Action is
needed to put matters right. To succeed,
it will require an
approach more focused on growth, boosting the economic
factors of both supply and demand within a more fluid and
efficient
single European market. The EESC particularly
supports the invitation at the last spring summit to promote
new partnerships for reform, both at national and European
level, which involve the social partners more closely. The EESC
stresses the need to keep our eyes firmly fixed on the 2010
deadline, which must
the
Lisbon reforms and completion of the single market and a
genuine, competitive economic union, making full use of
monetary union, while taking full account of the demands of
sustainable development.

include both implementation of

— measures

that directly support economic activity and
growth in Europe: development of public/private partner-
ships to finance new trans-European infrastructures for the
enlarged EU, statement of an EU industrial approach to
help channel
into the new technologies,
research and training and guide competition and commer-
cial policy, mobilisation of EU technological resources in
major projects of common strategic interest, including the
security field;

investments

2. Introduction

— a strengthened and redeployed EU budget, corresponding to

the priorities of this common economic policy.

1.4.4
The structural reforms of the Lisbon strategy, finally,
need to be implemented with more determination and consis-
tency:

2.1
This opinion is being drawn up following an exploratory
referral from the president of the EU Commission, Romano
Prodi, who asked the Economic and Social Committee on
20 February 2004 to submit to him its analysis of and recom-
mendations concerning the competitiveness problems of Euro-
pean businesses. This was to involve, in particular, identifying
the most significant difficulties for companies, the obstacles
created by the environment in which they work, and the alter-
native proposals for putting things right, against the backdrop
of our model of society.

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2.2
A number of recent analyses, such as the Sapir report of
July 2003, highlight a growing competitive challenge for
Europe, caught in a squeeze between its large industrialised
partners — such as the USA and Japan — and the low-cost
emergent economies, such as China and India, which are
making increasing use of the new technologies and investing in
training, education and infrastructure. The figures (e.g.
in
respect of exports, the current account balance and the trend in
company profits) show that the EU economy and the over-
whelming majority of European enterprises are highly competi-
tive. Many indicators are, nonetheless, alarming: low growth,
an unsatisfactory level of both investment and demand, fewer
and, at times, lower-quality jobs, closures of European produc-
tion sites, an exodus of research workers, worsening govern-
ment deficits, the growing cost of the social security system
and an accelerated ageing of the population are all giving rise
to growing financing problems.

2.3
In order to offset Europe's high costs (labour, taxes,
regulations), many companies opt for automation (production,
management) or for more or less partial and large-scale reloca-
tion to cheaper and less regulated non-EU countries, particu-
larly the emergent economies.

other and, in the opinion of some, allow insufficient insight
into and participation in their operational procedures. With
this in mind the EESC called for, then supported, the WTO's
Doha agenda, even though today it is very concerned about the
difficult progress of the talks.

2.5.2
It is also becoming urgent for Europe to be made
more competitive under conditions ensuring its economic and
social development, its cohesion, its jobs and its environment.
This means, as part of the European model for labour relations,
making better use of European companies' trump cards, and
correcting their disabilities, or offsetting them by better quality
and higher productivity when they appear structurally incur-
able (such as labour cost differentials between Europe and the
developing countries).

2.5.3
It is neither realistic nor desirable for the EU to endea-
vour to compete on price and costs with clearly less developed
economies when it cannot offset the differential through higher
productivity. The European economy therefore has no other
choice but
to upgrade itself continuously and to compete,
above all, by boosting productivity in terms of both quality and
quantity and through innovation. This means a proportional
increase in human,
industrial and financial
investments.

technological,

It would certainly be ridiculous to try and use authori-
2.4
tarian measures to counter these strategies of
international
redeployment. The European economy is an inseparable part of
an increasingly globalised economy. The process is irreversible
and actually contributes both to the development of
the
various countries involved in it and to international stability, if
it is sufficiently managed to generate real economic and social
progress.

In view of these general conditions, the following are

2.5
clearly required:

2.5.1 More than ever, globalisation must be subject to more
effective and fairer international rules. The competitiveness
issue should in no way become like an uncontrolled cost-
cutting spiral, with no consideration for health conditions,
safety and social progress, balanced and sustainable develop-
ment and environmental protection. On the contrary, it must
be placed within an internationally recognised reference frame-
work including minimum rules on competition, safety, quality,
labour rights and the environment. This means the active invol-
international regulation and development bodies
vement of
such as the World Trade Organisation, the International Mone-
tary Fund, the World Bank and International Labour Organisa-
tion, which are still too ineffective and walled-off from each

3. The competitive trump cards of European companies

3.1 Strong involvement in globalisation

Europe is today a central trading partner in the world,
3.1.1
the world's number one importer and exporter. Its companies
maintain their export competitiveness in the teeth of interna-
tional competition by boosting productivity to optimise their
costs, including wages, by ensuring the quality of their products
and services and by innovating in order to adapt better to
markets. They thus manage to be present in most economic
sectors, particularly:

— agriculture and food, where they are in the forefront of

trade;

— the main industries, such as cars, aerospace, chemicals,
construction, public works and telecommunications, where
the performances of European companies are also among
the best;

— energy production and distribution — oil, nuclear power,
gas, alternative energies — and environmental technologies;

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— services, where European companies are often world
leaders, e.g. commerce, finance, insurance, transport, engi-
neering, computer software, tourism and the health sector.

3.1.2
in the
European companies also invest a great deal
world, contributing to the growth of a number of world
regions, such as the emergent economies in Asia. While these
may be compete with Europe in various sectors, they are also
industrial and commercial partners that are essential to the
European economy and its companies as suppliers, partners,
distributors, sub-contractors and customers.

3.2.3 While helping cohesion in Europe, such freedoms
have enabled companies to develop their trade, cooperation,
restructuring and mergers, giving many of them an interna-
tional dimension. SMEs have also benefited from European sub-
contracting operations, such as the removal of
intra-Com-
munity formalities. Infrastructures have developed with trans-
European transport, energy and telecommunications networks.
Major industrial programmes (e.g. Airbus, the Space Agency)
have stimulated research and innovation in companies of all
sizes. As well as jobs, the single market has encouraged the
mobility of assets, of research workers and students — one
million have benefited from the Erasmus programme.

Because of the very important role that they play in
3.1.3
the developing countries, European companies should set an
labour standards in these
example for the development of
countries, particularly in the implementation of
the basic
labour rights defined by the ILO. The EESC will continue to get
involved and participate in any initiatives that are needed to
raise the profile of social issues in international trade.

3.1.4
The international trading and investments of European
companies are supported by the European Union, which has
organised itself, through the European Commission, to defend
their interests with one voice at international negotiations, such
as those at the WTO.

3.2.4 Mention should also be made of the opening-up of the
former public sector monopolies in the single market that has
been accomplished or is going on following several directives
on such areas as transport, energy and the postal services.
While doing this, the Commission is also taking good care not
to jeopardise the concept of general
interest services, which
plays a fundamental part in European economic and social
development over and above the liberalisation necessary in the
interests of the single market.

3.2 The single continent-wide market

3.3 Monetary union

recognition,

3.2.1
The single market is the first trump card of European
companies, built on common rules with a general principle of
mutual
supplemented by numerous cases of
harmonisation through some 1 500 directives, 300 regulations
and almost 20 000 common standards. The vast majority of
the legislation affecting companies' activities finds its source
there. Its economic and employment advantages, which were
already highlighted by the Cecchini report at the end of the
1980s, are still of relevance today, even if the projections of
that report could not be fully confirmed by the 1992 deadline
because the economic situation was in a disturbed state and the
Community programme was not completed.

3.3.1
The move to the euro has been the most striking stage
of the single market and a big step forward for the competitive-
ness of EU businesses. By creating a single currency for twelve
Member States and 300 million Europeans already, the euro
has eliminated any exchange-rate risk in the eurozone, neutra-
lised transaction costs in trade and ensured permanent trans-
parency of economic data. It is also a currency with an interna-
tional dimension. And if its current overvaluation in relation to
the dollar penalises exports — while facilitating imports, parti-
cularly of oil and raw materials — the terms of trade which
were the reverse a few years ago will continue to evolve anew
in the future.

3.2.2
This single European market is now the biggest in the
world, with 25 Member States, the close association of other
European countries, such as Switzerland and Norway, and the
prospect of
further enlargement. More than half a billion
Europeans are thus assembled in the same single internal
market, of greater weight than either the American or the
Chinese market. This highly significant fact should be made
more widely known to Europeans.

3.3.2
This monetary union, which today has no equivalent
in the world, has also shown that the EU is capable of carrying
out a big innovative and motivating project having a major
It has considerably
impact on its citizens and companies.
enhanced the external visibility of the EU and consolidated its
international negotiating position, for the benefit of its compa-
nies.

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3.3.3
The growth and stability pact accompanying the euro
aims at a minimum of economic convergence, with rules
limiting public sector deficits and inflation. It makes it easier
for companies to look ahead in a stable environment that
favours competitiveness. It is also the first step towards a truly
integrated economic union. Obviously,
there cannot be a
sustainable monetary union without progress in complemen-
tary areas,
including business competitiveness, which form a
major part of the Lisbon strategy.

3.4 Lisbon: the ambition for reform

The Lisbon European Council in March 2000 decided
3.4.1
to undertake a vast programme of economic, social and admin-
istrative reform at both national and European level, with the
aim of making Europe the most dynamic and competitive
knowledge-based economy in the world by 2010, capable of
ensuring sustainable economic growth with more and better
jobs and greater social cohesion. This strategy is the European
economy's roadmap for uniting its forces in the face of globali-
sation, in a more competitive Europe.

3.4.2
The reforms are relevant as they are bound up with
the main issues of EU business competitiveness. Their aims are:

and make more intensive use of equipment,
boosting productivity;

thereby

— efficient and sustainable social welfare, in the face of the
problems posed by increased spending, especially with an
ageing population;

— simpler regulations, both at national and EU level;

— and, following the June 2001 Gothenburg summit, better
integration of environmental protection and the require-
ments of sustainable development.

3.4.3
with:

The methods of the Lisbon strategy are also relevant,

— a new timetable for completing the single market, with

intermediate stages;

— an annual assessment at a European spring summit;

— an ‘open coordination method’ on common objectives,

highlighting good practices;

— a priority role for the private sector and partnerships

between the public authorities and civil society;

— an emphasis on dialogue between social partners.

— easier access to funding, including venture capital, particu-

larly for SMEs and innovatory companies;

3.4.4
tive results:

This Lisbon strategy has already had some initial posi-

— reduction of the tax burden on labour, particularly unskilled
and low-paid work, so as to make its costs less dissuasive;

— an awareness of the need for reforms, transcending tradi-

tional division;

— reduction of public sector deficits, which is linked to price

stability and tax moderation;

— a faster spread of information technology and innovation;

— more support for company start-ups and SME funding;

— stimulation of innovation, on which the technological capa-

city of EU firms depends;

— adjustments to education and training,

in particular to
respond better to new economic, professional and technolo-
gical conditions;

— more

sustainable

concern about

development, with
measures to make public services more efficient while redu-
cing public-sector deficits, consolidate social security while
balancing its budget, bring in legal measures and introduce
energy and industrial technologies that protect the environ-
ment better;

— modernisation of the labour market, thus making it easier
to match job supply and demand, boost the employment
rate, improve the quality of jobs and working conditions

— less legal and administrative red tape, even if limited in

scope.

— involvement of the social partners in social reforms;

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3.4.5
The Lisbon strategy's competitive ambition would be
unrealistic without renovation of the EU institutions. Such has
been the mission of the European Convention, whose innova-
tive membership has brought together representatives of the
EU's states and institutions, the applicant countries, the national
parliaments, and observers from civil society. The Convention
has proposed a re-casting of the treaties to allow for a more
modern and simplified institutional framework, better adapted
to enlargement on a large scale, more readable and more attrac-
tive to public opinion. There is also the question of incorpor-
ating into the Treaty the intrinsic merits of the European model
of society, where the search for competitiveness goes hand in
hand with the upgrading of jobs and social progress. Among
the EU's objectives, the new Treaty adopted by the 25 in June
2004 quotes
that of a highly competitive social market
economy, aiming at full employment and social progress, and a
high level of protection and improvement of the quality of the
environment. The EESC supports this need for overall consis-
tency, combining competitiveness with other aims of higher
quality and social progress, while noting that it is still far from
being the case today, owing to several handicaps that continue
to affect Europe's competitiveness.

4.1.3
Also worth mentioning is the relatively high unem-
ployment rate in Europe, especially when compared with the
USA. This situation has negative effects on Europe's competi-
tiveness, its high overall tax burden and on the equilibrium of
social welfare schemes.

4.1.4
Finally, many entrepreneurs feel that the EU tends
more to just pile up analysis reports on Europe's competitive
backwardness
than to undertake really operational
measures leading to verifiable results — like our main competi-
tors, from the USA to China.

rather

The EESC notes that the social partners themselves are
4.1.5
well placed to take such operational action in support of
competitiveness and entrepreneurship. Many examples confirm
that they often play a very important role here. This locomotive
role of the social partners should have been emphasised in the
Commission's Green Paper.

4. Competitive handicaps of European businesses

4.1 Insufficient support for entrepreneurship

4.1.6
The EESC would also underline that entities working
within the so-called social economy very often face the same
barriers as those mentioned above concerning both taxation
and other matters, such as public procurement and competition
rules. The EESC believes that applying specific solutions to
these problems would make a substantial contribution towards
improving the EU economy and the employment situation.

4.1.1 While some of the EU's competitive assets are still
more ongoing processes than firm acquisitions, handicaps
penalise the competitiveness of European companies and
contribute to the current sluggish performances on the growth
and jobs front.

4.2 Persistent technical and other barriers

4.1.2
The recent debates on entrepreneurship following the
Commission's Green Paper have confirmed that in the majority
of the European countries companies of all sizes declare that
they are confronted with problems daily owing to:

— the excessive complexity of regulations, both national and

European;

— the generally high level of tax and welfare charges;

— the frequent difficulty of finding funding;

— insufficient support for risk takers — including the frequent
lack of a second chance when an initial business project has
been unsuccessful;

— mismatches between job vacancies in firms and professional

skills.

4.2.1
Despite its achievements, the single market has made
insufficient progress in several areas. This is particularly the
case with services, which account
for 70 % of economic
activity, but where the level of mutual recognition and harmo-
nisation still falls far short of requirements. Numerous delays
also persist in opening up the public sector:

— obstacles concerning sectors,

in certain countries, where
public-sector monopolies have continued to persist, such as
transport, energy, the post and, though to a lesser extent
today, telecommunications;

— ‘separation’ of public procurement contracts (barely 10 % of

these concluded with non-national companies);

— administrative separation, when management of the single
market requires increased cooperation in many fields (e.g.
taxation,
fraud
prevention and the environment).

customs, police,

competition,

justice,

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4.2.2
In addition to the liberalisation that has been carried
out, is in progress or is planned, and also the delays that can
sometimes be noted in these areas, the question of the status of
services of general interest within the single market still needs
to be clarified. The specific role of general
interest services,
which was already covered in several directives opening up
individual sectors, was dealt with overall in the Amsterdam and
Nice treaties. The Commission itself is preparing a cross-sector
instrument for spelling out the role of general interest services
in the single market. However, so far the debate has remained
confined to the role of national public services in dealing with
the European single market, without in any way considering if
interest can be developed in a
and how services of general
targeted manner on a European scale. However, such a ques-
tion should not be ruled out today in any real debate on the
future of the enlarged single market and the competitiveness of
European businesses.

European Union from 15 to 25 Member States still raises some
big questions about how to improve the various aspects of
employment (training, occupational and geographical mobility,
quality of employment, reconversions, etc).

Lastly, the principle of freedom of movement and free
4.2.9
establishment within the single market has been temporarily
limited with enlargement, because of the exemptions of up to
seven years decided with respect
the new
Member States. These restrictions run counter to a free opera-
tion of the labour market in the enlarged Europe and may
penalise the vocational training and retraining efforts that have
been made in these new states. Barriers are also faced by indivi-
duals from the new Member States who wish to start in self
employment in the EU-15.

to nationals of

In addition to the development of EU rules,

4.2.3
the
Member States themselves continue to regulate under condi-
tions which may complicate or even hamper the single market
for businesses. A procedure of prior notification to the
Commission has been set up (Directive 83/189), but the latter,
weighed down by its many tasks, can only react effectively in
the most blatant cases, and enlargement will complicate its
task.

4.2.4
There are still too few directives transposed into law
by all the Member States; usually 10 % are not fully imple-
mented, and even 25 % in some sectors. Violations are also too
frequent, with around 1 500 cases currently under investigation
by the Commission.

4.2.5
Tax convergence within the single market remains
woefully inadequate, not least because of the need for unani-
mity in the Council. In particular, all cases of double taxation
must be abolished, a harmonised corporate tax base developed,
and the intra-Community arrangements for VAT simplified.

The complexity and cost of obtaining European intel-
4.2.6
lectual protection are also a handicap for EU companies, as
confirmed by the persistent delay (thirty years!) and the foresee-
able cost of the Community patent.

There are also delays on various

4.2.7
trans-European
network projects in the enlarged Europe, for which the public,
private or mixed funding still remains to be found.

4.3 The lack of economic union

4.3.1 Monetary union has not resulted in the dynamic
economic growth that it should have encouraged. One basic
reason for this is that it has still not yet been accompanied by
true economic union. The start made by the growth and stabi-
lity pact has itself posed problems recently. It is not respected
by several states, including France and Germany, which have
exceeded the 3 % ceiling for the public sector deficit. In addi-
tion, questions have arisen on the effects of the pact (whose
stability component is a lot clearer than the growth compo-
nent) on the sluggish economy. To compensate for the limits as
well as the constraints of the pact, a more integrated economic
approach should be developed, which is hardly the case at
level of coordination of the
present with the still minimal
broad economic policy guidelines (BEPG).

4.3.2
The Eurogroup, comprising the states of the eurozone,
has to date remained unstructured, understated and, basically,
intergovernmental compared with a European Central Bank
organised on federal lines. We are a long way from the start of
a European economic government.

The Economic and Financial Council is itself far from
4.3.3
being an economic government of
the EU, with members
happy to stick to their national interests, boosted by the wide-
spread use of unanimity. There is a lack of tax harmonisation
in Europe.

4.2.8
The delays in completing the single market have
contributed directly to the highly unsatisfactory state of
employment and the labour market. The enlargement of the

Finally,

4.3.4
the Council on Competitiveness set up in
recent years does not have any special link with the Economic
and Financial Council, and has difficulty in actually carrying
out a necessarily multi-sided mission concerning all the forms
of the Council.

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It

is also regrettable that

4.3.5
the draft Constitutional
Treaty has shown a lack of development and innovation as
regards deepening the economic union,
to a
number of its provisions in other fields. It would have been
more relevant for the cohesion and competitive convergence of
the European economy to grant the Commission a real brief to
propose, and not merely recommend, concerning both the
BEPG and public sector deficits.

in contrast

4.4 The structural reforms deficit

At

the spring summits,

the Member States have
4.4.1
appeared to give priority to new debates on the objectives
already set in Lisbon, even if
it has meant piling up new
prescriptions, instead of making a comparative assessment of
national reforms. Too many Member States have also neglected
to involve the social partners fully in defining and imple-
menting reforms, and have hardly consulted or mentioned
them in reports on the state of progress.

4.4.2
reforms is on a par with the delays:

The discretion of the Member States on the state of

At EU level, the 25 have agreed to complete the
4.4.2.1
in several areas (e.g. energy, services, public
single market
trans-European networks, adaptation of public
purchasing,
services), but baulk at adopting the necessary measures within
the time limits.

At national

4.4.2.2
level, results vary. Even the Member
States that are most advanced on reforms are behind in some
areas compared with more efficient non-EU countries, and
Europe as a whole is still handicapped as regards competitive-
ness. Now, the reforms are not only about doing better than
before, but above all about doing better than elsewhere. The
following are particularly worth noting:

4.4.2.2.1
As regards the opening-up of markets, significant
progress has been achieved in telecommunications and, to a
lesser degree, energy (gas and electricity) where prices are still
often too high. The opening-up of the postal sector is only
making slow progress in certain countries, with a still partial
objective to be achieved in stages up until 2009. Interconnec-
tion and modernisation delays persist in transport infrastruc-
ture, which is particularly affecting the implementation of
trans-European network projects.

As regards access to funding, integration of the EU
4.4.2.2.2
financial market is in progress, supported by the setting-up of
the euro. Various measures have been taken to facilitate the
fund of start-ups and SMEs. But access to venture capital

remains insufficient. In addition, the unification of the financial
market remains over-dependent on rules; socio-occupational
co-regulation, as defined and regulated by the agreement
concluded between the EU institutions on 16 December 2003,
would have been worth encouraging.

As regards public-sector deficits, situations vary
4.4.2.2.3
greatly depending on the country concerned: some states have
a public-sector financial surplus (e.g. Denmark, Finland, Luxem-
bourg and Sweden), while others have reached or exceeded the
Italy and
limits of the stability pact (e.g. Germany, France,
Portugal). Those countries with an excessive deficit are also
those which are most behind in implementing structural
reforms.

As

regards

encouraging

innovation,
research
4.4.2.2.4
spending remains inadequate.
It represents 1,9 % of GDP,
compared with 2,6 % in the USA, and investments by enter-
prises are twice as high in the USA as in the EU of 15. This is
far below the objective fixed at Lisbon of 3 % of GDP to be
spent on R&D, with two-thirds coming from the private sector.
Spending here is also insufficiently coordinated between coun-
tries and with the EU framework programme for research. The
lack of a common policy for the EU in strategic areas affects its
technological investments. The number of patents registered in
the EU, especially for new technologies, is still well below that
in the USA or Japan, not least because of
the continuing
absence of a cheap and effective EU patent.

4.4.2.2.5
As regards improving the labour market, situations
vary from country to country: some have a high overall
employment level while others have structural under-employ-
ment. Major reforms are in hand to improve the operation of
the labour market, its flexibility and the matching of vacancies
to job applications. However, if Europeans are to subscribe to
the Lisbon strategy it is imperative that these reforms quickly
lead to sustainable quantitative and qualitative progress as
regards lifelong training and jobs, with proper application of
the law or collective agreements. In particular, there is still a
lack of investment in training geared to producing high quality
jobs and vocational qualifications that are competitive. Consul-
tations with the social partners, and negotiations with and
between them, must aim in particular to ensure that the new
arrangements actually improve jobs and working conditions
when faced with the issues of international competitiveness.
The Kok report has also stressed the priorities which still have
to be implemented if things are to be put right in a sustainable
manner.

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4.4.2.2.6
As regards the solvency of social security, many
reforms are underway to restore its financial balance in the face
of the growing ageing of the population throughout Europe.
This involves in particular adapting the duration of contribu-
tions to growing life expectancy and encouraging the use of
supplementary insurance schemes and pension funds. Despite
their growth, these reforms are encountering major delays as
regards social protection provided by supplementary schemes,
as well as problems of implementation and effectiveness, parti-
cularly too many early retirements despite the pledges made in
2002 in Barcelona. In particular, there is a need to see that
social security reforms are carried out fairly and avoid creating
new situations of exclusion, which would have negative social
and economic effects on the European economy.

4.4.2.2.7
As regards education and training, most of the EU
countries have, on the whole, efficient and well-developed
educational systems, though sometimes they are too divorced
from economic realities and provide inadequate job prospects,
access to them is often too selective and they are not properly
geared to ensuring effective
lifelong support. Exchange
programmes to intensify these links and develop apprenticeship
schemes are growing. Generalised Internet access also helps to
improve training.

some have started sooner

4.4.2.2.8
As regards simplifying red tape and improving
quality and efficiency, there is a need common to all EU coun-
tries, even if
than others on
programmes to put things right. Priority is generally given to
simplifying procedures for setting up companies and small
enterprises because of their impact on economic activity and
jobs. A focus should also be given to supporting companies in
developing and running operational procedures. These reduce
inefficiencies and support productivity growth creating greater
competitiveness.

As

regards

4.4.2.2.9
sustainable development, national
measures for implementing the Kyoto agreements are devel-
oping, with variable results. Environmental protection is tradi-
tionally more enshrined in the northern countries, but new
measures are being taken in the others, and exchanges of good
practices have enabled successful experiments to be taken as a
starting point (e.g. voluntary codes, charters, labels, distribution
of emission licences). It is essential to see that the EU's competi-
tiveness strategy is subservient
to environmental protection
policy and the pledges made in this area, and in no way consti-
tutes an obstacle to this policy.

the overall

On balance,

4.4.3
impact of reforms is still
mixed. Despite the plethora of reports on worsening competi-
tiveness and the accumulation of ‘processes’ or strategies to
improve it (e.g. Luxembourg, Cardiff, Cologne, Lisbon, Gothen-
burg, Barcelona, etc), the EU has trouble implementing each of

its declared choices (single market, financial area, knowledge-
based economy, environmental excellence, etc.).

4.4.4
At the same time the economic and jobs situation in
Europe has got steadily worse since the favourable economic
situation at the Lisbon Summit in 2000. This has been due to a
lack of investment and demand, resulting from, among other
things,
restrictive monetary and financial policies, and to
various other reasons connected with the climate of insecurity
generated by the terrorist attempts,
tensions,
financial and stock market disturbances and the oil price,
which have all combined to have a negative impact on business
activity and confidence. Growth rates have fallen from 3,5 % in
2000 to 1,6 % in 2001, and barely 1 % since 2002, and unem-
ployment has risen to over 8 %. This worsening of
the
economic and social situation in Europe contrasts with the
current dynamic growth in the USA (nearly 5 %), even this is
based on highly specific conditions (e.g. dollar exchange rate,
budget deficit, and military spending).

international

4.4.5
The Lisbon strategy is in a vicious circle: the lack of
growth complicates the adoption of reforms, and the delays
themselves hamper the return to more growth and jobs. Faced
with an inflation of reform aims, commitments and partici-
pating states, we see as many deficits in co-responsibility,
implementation, coordination and therefore economic and jobs
impact. There is a risk of becoming an illusion, of not under-
taking the reforms required with the necessary determination,
while pretending that
the strategy is progressing. Such a
‘Lisbon bubble’ would not wait until 2010 to burst.

5. The EESC's recommendations

5.1 Revive the confidence of those involved in economic life

5.1.1
Europe's competitiveness must form part of an overall
project that is political, economic and social, able to attract
wide support from and the involvement of social and occupa-
tional stakeholders. The new treaty will have to contribute
towards meeting these expectations.

5.1.2
It is particularly important for this European project
to be better regarded, with respect to its overall environment,
in its relations with both its neighbours and with its various
international partners. The question of Europe's attractiveness
and its adjustment to structural change should be discussed and
set out in detail better, particularly as regards international
investments, setting up in Europe and relocation to other
regions of the world. The EESC expects the current WTO nego-
tiations in particular to contribute towards framing better inter-
national rules for managing trade and investments on a world-
wide scale.

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Just as new rules are needed at international

5.1.3
level,
where they are clearly inadequate at present, there has to be
less red tape in Europe, which has to cope with too many
administrative procedures and rules. This could be done
through:

— reforming the preliminary impact analysis, with guarantees
of autonomous analysis, systematic tests to examine alterna-
tives to traditional regulation, checks on the effect of the
project on simplification and competitiveness, systematic
publication of the analysis with the draft rules;

— arranging to justify all amendments that might oppose

compliance with the impact analysis;

— involving businesses and other users

in simplification
upstream from regulation (SLIM committees a priori rather
than a posteriori);

— encouraging socio-professional self-regulation and co-regu-

lation on a European scale, especially in services;

— pushing states to parallel national simplification, plus a

euro-compatibility test.

5.1.4
Policies should be pursued aimed at providing more
focused support for business start-ups and development, with
to venture capital — which would justify
better access
extending intervention by the European Investment Bank in
this area — more training programmes for entrepreneurs by
other entrepreneurs and a denser network of support services
for small firms in all the Member States, with coordination at
European level.

5.2 Finish completing the single market

5.2.1
It is high time to ensure the rapid completion of the
essential provisions of the single market, which has now grown
from 15 to 25 Member States. This should not be postponed
beyond the deadline of 2010 fixed in Lisbon. Such an objective
is now essential, though one should not overlook the need later
on for constant maintenance and for adjustments.

The first thing is to ensure that directives are trans-
5.2.2
posed more rigorously into national laws, and that the time
limits set are actually respected, in accordance with the pledge
given at the European summit. This means making govern-
if necessary
ments more aware of their responsibilities here,
with EU aid to laggard countries being tied to improved
compliance with deadlines. In addition, instead of the prepon-
derance of directives, transposition would be easier if more use
were made of regulations, which are of direct and uniform
application.

5.2.3
include:

Harmonisation priorities of interest to competitiveness

— a regulation eliminating double taxation within the single
market, which would replace the present impenetrable and
conventions between
incomplete myriad of bilateral
Member States;

— a simplified European company statute open to SMEs —
which the EESC has called for several
times — which
would offer them new possibilities for development, coop-
eration and sub-contracting on a European scale, starting
with the border areas;

— the rapid provision of a simple, effective and cheap Com-
munity patent, since the persistent delays in adoption here
are giving the impression that Europe is structurally incap-
able of keeping its pledges on competitiveness;

— the completion of a genuine internal market in services,
professions
involvement

active

the

of

the

with
concerned (1).

5.1.5
In addition, on a general level, businesses, professional
associations and the various players in civil society should be
encouraged to take more initiatives on a European scale, by
making greater use of the new freedoms to cooperate and trade
that have been given to them by the progress of European inte-
gration. Their initiatives on the ground, as well as the new
measures expected from the EU institutions or the Member
States, will play a key role in ensuring that the steps to recover
competitiveness that are being taken in Europe have a real
impact and positive results, and that the various barriers and
obstacles which continue to hamper it are finally removed. At
the end of the day, achieving a more efficient and competitive
Europe will above all depend on the multiplication and mutual
strengthening of such initiatives by firms and associations,
which the European, national and regional authorities will have
to facilitate and manage, above all, by providing a favourable
competitive environment.

5.2.4
The abolition of administrative compartmentalisation
is also essential if the single market is to be strengthened, and
the EU should provide more direct support here than is
currently the case. It should involve:

— better cooperation in Europe between national administra-
tions, which are now required to co-manage a single
market of 25 Member States;

— Community inspections in the Member States, with reports
highlighting any malfunctioning and suggesting remedies;

(1) An EESC opinion is being prepared on the draft directive.

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— standardised customs at

following
enlargement, starting with a common training base and
more intensive training periods and European exchanges of
customs officials;

the external borders,

— the publication of European comparisons of actually

concluded public contracts;

— better transnational coordination of public services, which
could, if necessary, pave the way for the emergence of such
services on a European scale in appropriate areas.

5.3 Developing economic union

5.3.1
Having a more real economic union is the key to
making European businesses more competitive, and vital to
ensuring the full viability of monetary union.
In particular,
Europe should have a more adequate and stable macro-
international
economic
economic situation as regards policies to support both supply
and demand. It is essential to develop this common economic
policy in line with the competitiveness pledge for 2010 given
in Lisbon. This means:

to the vagaries of

response

the

— extending the eurozone into the new EU states as soon as
the criteria for doing so in a

they are able to respect
sustainable fashion;

— developing the advantages of the Community method (e.g.
Commission proposals and reports, majority votes in the
in
Council) on all questions of
economic matters;

truly common interest

— enforcing the stability and growth pact in conditions that
also take account of competitiveness issues, i.e. by encoura-
ging the conditions for investment rather than administra-
tive spending.

5.3.2
towards economic union are:

Among the measures which would boost progress

— issuing a Community opinion beforehand, and not a poster-
iori, on national finance bills, to ensure they comply with
the broad economic policy guidelines (BEPG);

— better linkage between the employment guidelines and the

BEPG, rather than just juxtaposing them;

5.3.3
One condition for economic union is to bring tax
systems closer together, especially the bases for assessment,
under conditions that are compatible with an economy that is
open to trade and attractive to investors. Freedom of rates
could be regulated in areas concerning the single market
directly. Concerted tax relief would be necessary on jobs. In the
absence of unanimity,
increased cooperation between states
eager to progress along this road would already enable some
initial progress to be achieved.

5.3.4
should aim at:

The goals of a better coordinated economic policy

— developing a policy of growth to boost economic activity
and jobs, as the most recent European summits have recog-
nised: this means, in addition to more interventions from
the EIB, whose impact, without being negligible, will
remain limited, giving a new dimension to public/private
partnerships,
in particular to finance new trans-European
infrastructures for the enlarged EU;

— stating a more active industrial approach, clarifying the
EU's interests, with a compatible competition policy, a
commercial policy more focused on defending of those
interests, support for major joint projects and support from
the EU budget;

— ensuring the necessary development of innovatory invest-
ments and research by businesses so as to boost European
competitiveness in terms of quality;

— ensuring, in particular, Europe's autonomy in areas of tech-
nology that are essential to its security (where necessary by
increased cooperation, with preference being given to
opening up the corresponding public purchasing contracts);

— focusing the common R&D policy on joint projects, with

euro-compatible national approaches.

5.3.5
The new budget agenda for 2007-2013 should focus
on this issue of Europe's competitiveness. To do this, it should:

— anticipate economic, industrial, regional and social changes

more, and promote adaptations upstream;

— speeding up organisation of the European financial area,
including socio-professional self-regulation and co-regu-
lation.

— continue the reform of agricultural policy with the circles
concerned, aiming at a competitive European agri-food
industry, environmental and consumer safety targets, and
balanced rural development;

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— strengthen the EU's international presence, by making
development aid more effective, developing partnerships
and supporting European business investments in non-EU
markets with high growth potential;

— ensure the interconnection of telecommunications, energy
and transport networks, under optimal conditions in terms
of cost, quality and security;

— adapt EU aid procedures, i.e. make aid more conditional,
(particularly as regards economic convergence and the
transposing of EU directives), obtain more reciprocity from
beneficiary states (competitive environment for businesses,
less red tape, removal of obstacles), check the compatibility
of EU aid with the competition rules, as with state aid (keep
a lookout for harmful distortions and disturbances that
might arise from artificial relocations) and make more use
of loans, under improved conditions, rather than have aid
based mainly on subsidies.

5.4 Ensuring more consistent implementation of structural reforms

The Lisbon mandate must be made credible in the
5.4.1
eyes of Europeans. Fears over its meaning and its social cost
must be disarmed. These reforms will determine the future of
our development in an open economy.
It is a question of
ensuring the sustainability of the European model of society to
which Europeans are attached, and as expressed in the Charter
of Fundamental Rights, while reconciling it with the objective
of competitiveness.

5.4.2
This objective of competitiveness would also gain
from being explained better. For the EESC, it is not a question
of being the most competitive in the world by squeezing costs
to the maximum in all areas: such an objective would be both
illusory and impractical, and in several respects harmful and
its qualitative, social and environ-
unsustainable because of
it is more a question of giving
mental costs. For the EESC,
ourselves all the means to be fully and sustainably competitive
in an open and globalised economy, particularly through the
mastery of new technologies and a more innovatory organisa-
tion of work and productivity, while constantly taking care to
preserve and consolidate our model for social development in
Europe.

— speed up integration of

the EU financial market under
conditions that reconcile fluidity, harmonisation, security,
competition and self-regulation;

— make progress on productivity both directly in firms, e.g.
organisation of work, use of IT and new technologies, and
through a greater economic and social effectiveness of
public transfers,
scale —
opening up the public sector, European cooperation of
public services — facilitating the absorption of public-
sector deficits;

including by economies of

— ensure that research budgets are in line with the objective
the
set by the EU of 3 % of GDP, with two-thirds of
research budget having to be financed by the private sector,
and that national programmes are in phase with each other
and with the FRDP;

— stimulate apprenticeship and sandwich courses, make them
exchange

European

develop

more
accessible
programmes even further;

and

— help make job seekers more employable through training
programmes and personalised support for integration into
the labour market;

— encourage job seekers, both men and women, young and
old, to develop a self-employed economic activity by facili-
tating administrative procedures and not penalising them
from the social security point of view;

— ensure the solvency of social security, which will guarantee
its sustainability, bearing in mind the ageing of the popula-
tion in Europe, while at the same time discouraging and
stamping out illegal, undeclared work;

— simplify regulations and procedures, especially for SMEs,
while taking, as mentioned previously, more effective
measures to combat the underground economy;

— giving priority to business start-ups and encouraging entre-
preneurship, by reforming tax and administrative provi-
sions;

5.4.3
A start should be made on improving coordination
between the economic, social, administrative and environ-
mental reforms, on the one hand, and between the Member
States on the other. Comparability and mutual reinforcement
should be ensured. In view of the current situation of structural
reforms in the Member States, it is particularly necessary to:

— consolidate sustainable development and promote new
technologies in this area — which will open up new
markets worldwide to European companies — with more
exchanges of good practices, which could usefully be incor-
porated into a database.

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5.4.4
be backed up by:

At European level, this coordination of reforms should

— giving the EU Commission president, in liaison with all his
colleagues, special responsibility for taking account of EU
competitiveness issues, justifying specific initiatives for this
the
purpose in Commission policy — a member of
Commission could be designated by the president to assist
him in this task;

— beefing up the scoreboard of implementation of the Lisbon
reforms, stressing the role not only of the public authorities,
but also of civil society;

— gearing EU aid more to the aims of Lisbon, and assessing

this consistency in annual reports.

5.4.5
A key requirement today is to make Europeans more
motivated about European integration and the goal of competi-
tiveness that it has set itself. This means having a clearer vision
of the aims and features of the Europe now being built, and of
the overall economic and social framework for the structural
reforms. This involves in particular having a better perception
of what the European model of social relations should become.

Improving European business competitiveness means
5.4.6
job skills, encouraging
improving such things as employees'
their involvement in the organisation of work and strength-
ening social cohesion in companies through closer and more
modern labour relations.

5.4.6.1
The human investment in firms is crucial: the labour
force of a business, its human capital, is essential to produc-
tivity. It is on this investment, especially in training, that the
motivation of
capacity
depends.

and their productive

employees

5.4.6.2 While lifelong education and training has become a
central plank of EU employment policy, the percentage of the
labour force taking part in education and training is worrying.
This declines with age from 14 %, on average, for the 25-29
age group to around 5 % for 55-64-year-olds.

5.4.6.3
In a production system where jobs require more and
more technical knowledge and know-how, such a situation
gives ever-increasing grounds for concern about EU competi-
tiveness. It is desirable, if not essential, that this situation be
corrected. To do this, firms must incorporate training into their
strategy as a medium and long-term investment, not as some-
thing requiring a rapid, if not immediate, return on investment.

5.4.6.4
However, vocational training and lifelong education
and training must not be considered in isolation. They must be
the foundation on which employees' career management is
built. Training must ensure motivation in all age groups by
placing value on skills and making career paths more dynamic.
From this point of view, the assessment of skills and validation
of acquired knowledge are tools that must be developed as part
of individual career plans that interlock with a company's own
business plan.

5.4.7
The EESC also wishes to underline the role of the
social economy, which has been the subject of several of its
opinions. The EESC would point out that the social economy
can provide a model for increased competitiveness, based on
cooperation between individuals and companies and on its
capacity to respond to the needs of individuals and develop
human capital.

5.4.8
Apart from businesses and their employees, the social
partners have a key role in redefining these labour relations.
The Lisbon mandate originally assigned an essential responsi-
bility for making a success of the reforms to the private sector,
the social partners and civil society. The EESC deeply regrets
that this reference was undervalued at the first spring summits,
both in the reports of the Member States and in the debates
and conclusions of the European Council.

5.4.9
This situation started to improve with the meetings of
the social partners with the presidency of the Council and the
Commission on the eve of the spring summits. The multiannual
social dialogue agenda for 2003-2005 agreed by the social
partners (UNICE, CEEP, UEAPME and ETUC) also helped conso-
lidate their involvement in the implementation of the reforms
strategy. With its three focal points of jobs, the social aspects
of enlargement and mobility, this agenda for consultation and
joint initiatives places particular emphasis on improving voca-
tional training and skills. It thus helps to define a European
model of society combining better business competitiveness
and improved social measures.

It

is essential

5.4.10
These social partners have already undertaken key
reforms in the Member States in training, the labour market
and social welfare.
to encourage their joint
responsibility in the reforms, by highlighting their initiatives
and agreements in the reports at the spring summits, and by
including them in the exchanges of good practices. The EESC is
ready to disseminate, in a database, information on the involve-
ment of the socio-economic actors in the reforms.

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6. Conclusions

6.1
The EESC concludes that the competitive shortcomings
of EU businesses are the heavy price to be paid for a Europe
which is not enterprising enough, which is still unfinished in
many areas, which is lagging behind with its reforms and
whose exploitation of its trump cards is highly inadequate,
and therefore
often faint-hearted,
counter-productive. This observation is confirmed through four
major malfunctions:

incoherent,

sometimes

— supported the wish of

the European social partners to
consolidate their commitment with a new European part-
nership for change.

6.3
The EESC considers that such partnerships, both at
European and national level, should show greater urgency in
creating the conditions for
in rectifying Europe's
competitive position, and in particular help to:

success

— speed up the optimum organisation of the internal market;

— develop economic union up to the level of monetary union;

— insufficient promotion of entrepreneurship, despite Euro-

— involve all the interests concerned in the reforms;

pean freedoms;

— an internal market that remains unfinished, despite enlarge-

ment;

— an economic union that is still absent, despite monetary

union;

— structural reforms that are still badly implemented, despite

being planned.

Remedying these malfunctions is a collective responsi-
6.2
bility, in order to ensure greater consistency between Europe
and its states based on their complementary roles. The EESC is
pleased that the last European spring summit:

— called upon the Member States to promote partnerships for
reform involving the social partners, civil society and the
public authorities;

— undertake new initiatives to achieve this,
public and private sectors and associations;

involving the

— assess the progress of this partnership at the next spring

summits.

The EESC stresses the need to keep our eyes firmly fixed
6.4
on the 2010 deadline, which should include both implementa-
tion of the Lisbon reforms and completion of the single market
and a genuine, competitive economic union, making full use of
monetary union, while taking full account of the demands of
sustainable development.

6.5
Finally, the EESC notes that strong economic growth
would make it a lot easier to speed up the necessary reforms.
The European Union should take steps without delay to rein-
force the single market by stimulating supply and demand, and
thus create sustainable conditions for boosting investments,
trade, consumption and jobs.

Brussels, 27 October 2004.

The President

of the European Economic and Social Committee

Anne-Marie SIGMUND