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UNCLAS SECTION 01 OF 06 FRANKFURT 001373 
 
SIPDIS 
 
SENSATIVE 
 
STATE FOR EUR PDAS RIES, EB, EUR/AGS, AND EUR/ERA 
STATE PASS FEDERAL RESERVE BOARD 
STATE PASS NSC 
TREASURY FOR DAS LEE 
TREASURY ALSO FOR ICN COX, HULL 
PARIS ALSO FOR OECD 
TREASURY FOR OCC RUTLEDGE, MCMAHON 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EUN
SUBJECT: Lisbon Acton Program:  Its All About Growth and 
Jobs, or Is It? 
 
 
T-IA-F-05-009 
 
This cable is sensitive but unclassified.  Not/not for 
Internet distribution. 
 
¶1.   (SBU) Summary:  On February 2 European Commission 
  President Barroso presented his proposal to make economic 
  growth and job creation the focus of EU activities for the 
  next five years.  To move beyond slogans, Barroso has 
  proposed setting out who, the EC or member states, is 
  responsible for what reform, drawing up roadmaps for their 
  completion and establishing progress indicators to chart 
  progress.  The tightly focused "Partnership for Growth and 
  Jobs" promises to generate higher real GDP growth of 3 
  percent and six million jobs by 2010.  The Commission is 
  asking for member state endorsement at the March 22 Council. 
  Getting such an endorsement is a forgone conclusion.  The 
  question is whether Barroso's efforts will fare better than 
  the Lisbon Agenda that promised to make Europe the most 
  dynamic economy in the world by 2010. 
 
¶2.   (SBU) Some trends favor Barroso's enterprise.  Many EU 
  member states are undertaking serious reforms in labor 
  markets and social security systems, entertaining tax 
  reductions to spur investment and consumption, and stepping 
  up R&D activities.  Barroso has staked his political 
  reputation and those of his fellow Commissioners on the 
  success of his program, calling his team the "Lisbon 
  Commission."  His fellow Commissioners are speaking with one 
  voice on how they can promote jobs and growth in their own 
  areas of responsibility. 
 
¶3.   (SBU) Still, the risks of becoming another muddle are 
  already apparent.  Adding on projects either because they 
  are favorites of member states or already in the 
  Commission's work plan risks diluting the effort.  Allowing 
  member states to draw up their own national programs 
  increases the risk of unfocused effort.  Protests that 
  important social and environmental aspects have not been 
  given adequate emphasis have not been quelled with Barroso's 
  logic that growth is needed precisely to retain Europe's 
  social cohesion and sustainable development.  These risks, 
  however, could be overcome with skillful leadership, 
  thoughtful coordination between member states and the 
  Commission, and good fortune.  One key is nurturing a 
  constituency for change.  The other, as we were reminded by 
  a Luxembourg official, rests with member states.  With 
  continued high unemployment, looming higher costs of ageing 
  populations, and more intense competition within the EU, it 
  is hard to imagine member states not doing anything over the 
  next five years.  End Summary. 
 
The Launch:  Growth and Jobs Are the Next Great European 
Project 
--------------------------------------------- -------------- 
 
¶4.   On February 2 EC President Barroso presented his 
  detailed program for creating economic growth and jobs.  The 
  proposal was in the form of a Communication to the Spring 
  European Council which will take place March 22.  Barroso 
  asks the Council to launch a new Partnership for Growth and 
  Jobs, endorse an EC action program, call for member states 
  to establish their own action programs, and approve 
  streamlined arrangements to manage the process to ensure 
  effective results. 
 
¶5.   (SBU) Barroso's initiative stems from the mid-term 
  review of the Lisbon Agenda that was agreed in March 2000. 
  The objective of this Agenda was to make the EU the "most 
  dynamic and competitive knowledge-based economy of the 
  world."  An assessment of progress by former Dutch Prime 
  Minster Kok reports that achievements to date are "very 
  mixed and much needs to be done in order to prevent Lisbon 
  from becoming a synonym for missed objective and failed 
  promises." 
 
¶6.   (SBU) The three themes of the Communication are to (a) 
  focus on policies with the greatest impact on economic 
  growth and jobs; (b) mobilize support for change thereby 
  ensuring national ownership of new measures; and (c) 
  simplify and streamline procedures to ensure a clear 
  delineation of responsibilities and regular assessments of 
  progress. 
 
¶7.   (SBU) Economic growth and job creation are the 
  immediate targets of the new action program.  Quoting from 
  Kok's assessment, the Commission's paper states that: "The 
  promotion of growth and employment in Europe is the next 
  great European project."  The Communication also states that 
  the Commission is fully committed to sustainable development 
  and modernizing and advancing Europe's social model. 
  Without growth and job creation, such objectives would not 
  be achievable, in the Commission's assessment. 
 
¶8.   (SBU) Mobilizing support for the program at the EU and 
  national levels is important for member state "buy in." 
  Commission and member state officials often afford little 
  public airing of programs emerging from Brussels.  These 
  include the recommendations for national structural policy 
  reforms contained in the Broad Economic Policy Guidelines 
  that are duly endorsed every spring by the Council.   Basing 
  national commitments on domestic political consensus would 
  help ensure ownership of the programs. 
 
Contents:  Central Policy Areas and EC and Member State 
Responsibility 
--------------------------------------------- ---------- 
 
¶9.   (SBU) The proposed "Lisbon Action Program" consists of 
  a European Community Action Plan and National Action Plans 
  to be drawn up by member states.  Ten Central Policy Areas 
  to be given attention are:  (1) the internal market; (2) 
  competition; (3) improved regulation; (4) infrastructure; 
  (5) R&D; (6) innovation; (7) industrial base; (8) employment 
  and modernization of social protection systems; (9) 
  adaptability of workers and flexible labor markets; and (10) 
  investment in human capital. 
 
¶10.  (SBU) For each Central Policy Area action either the EC 
  or member states are assigned action for specific policy 
  measures.  Each policy measure would have a roadmap for its 
  completion, indicators for benchmarking progress, and an 
  indication how the measure would effect economic growth and 
  jobs. A selection of some of the proposals appears in the 
  last section of this message. 
 
Governance: Deliverance is Achilles Heel 
---------------------------------------- 
 
¶11.  (SBU) Ensuring that the Commission, Parliament and 
  Member States deliver on their responsibilities has been the 
  "Achilles heel" of the Lisbon Agenda, in the words of the 
  Commission's paper.  Assigning responsibilities and charting 
  progress against objective indicators would help ensure 
  accountability.  Each member state would appoint a 
  government official ("Mr. or Ms. Lisbon") responsible for 
  coordinating the programs and reporting on progress. 
 
¶12.  (SBU) The Commission would (a) assist member states in 
  drawing up their national programs and (b) evaluate the 
  targets and measures.  Each national program would have 
  three types of programs: macro and budget; labor market; and 
  structural reforms.  The Commission will integrate its Broad 
  Economic Policy Guidelines and Employment Guidelines into 
  one document by the time of the Spring Council that would 
  help "frame" member state measures.  According to a 
  Commission official, member states would be expected to draw 
  up their national programs by October. 
 
¶13.  (SBU) By January 2006 the Commission staff will assess 
  these programs in light of the Lisbon Action Program 
  objectives.  In the fall 2006 and again in 2007  the 
  Commission would undertake a "light review" of progress and 
  issue a Progress Report to the Council.  In 2008 the 
  Commission would perform an in-depth review that would start 
  off a second three-year review cycle.  Commission 
  observations will become increasingly pointed if progress 
  were faltering. 
 
Growth: Not Unreasonable Prospects 
---------------------------------- 
 
¶14.  (SBU) The Commission states that it would "not be 
  unreasonable" to expect that full implementation of the 
  Lisbon Action Program that they are proposing would lift 
  current EU growth potential, which is probably around 2 
  percent, closer to 3 percent by 2010 and increase employment 
  by six million.  It offers several examples. 
 
¶15.  (SBU) Completion of the single market in services would 
  boost GDP by 0.6 percent and employment by 0.3 percent. 
  Integration of EU financial markets would lower capital 
  costs for firms, increasing GDP by 1.1 percent and 
  employment by 0.5 percent in the long run.  Increasing R&D 
  expenditures from 1.9 percent to 3 percent of GDP could 
  raise GDP by 1.7 percent.  Better labor market policies and 
  tax and benefit systems could lift worker participation 
  rates and reduce unemployment by one percent.  Finally, 
  Structural and Cohesion Funds could comprise a significant 
  share of GDP in some new member states, helping to boost 
  their growth substantially. 
 
Observations: What Makes This Different 
--------------------------------------- 
 
¶16.  (SBU) While there is little question that the Council 
  will endorse something along the lines of the Barroso paper, 
  the more interesting question is whether Barroso's efforts 
  will result in anything more than the Lisbon Agenda. 
 
¶17.  (SBU) Rather than concentrating action, annual 
  discussions of the Lisbon Agenda became the occasion for the 
  current EU Presidency to gain agreement on its favorite 
  project, diluting focus in an ever-growing volume of EC 
  documentation.  The Agenda began to resemble a heavily 
  ornamented Christmas tree rather than a sleek, goal-oriented 
  MBA's business plan.  By last count there were 28 main 
  targets, 120 secondary targets and 117 indicators encased in 
  a cumbersome reporting process. 
 
¶18.  (SBU) The ideas in the Commission's recommendation are 
  not novel.  Most were contained in a report by a group of 
  economic experts to Commission President Prodi in July 2003 
  chaired by Prodi's advisor Sapir.  Regrettably, one idea did 
  not find its way into Barroso's paper: that EU budget be 
  directed away from agricultural supports as they do not 
  promote growth and employment. 
 
¶19.  (SBU) What is new is that the Commission President 
  would stake his political reputation and that of his fellow 
  commissioners, on a program focusing on economic growth and 
  employment.  There are some favorable winds for doing so. 
  One is that many European countries are now embracing the 
  kinds of structural reforms long advocated by the Commission 
  (and IMF and OECD, for that matter). Pursuit of labor market 
  and social security reforms, lower tax burdens and better 
  functioning capital markets are now everyday news.  For 
  example, France's National Assembly approved a bill February 
  8 allowing workers to work more that 35 hours a week. 
 
¶20.  (SBU) Another favorable wind is that his fellow 
  Commissioners are clearly on board, speaking with one voice 
  on how they can contribute to the growth and jobs goals. 
  Good people can make a difference, in the judgment of one 
  pro-reformer.  Competition Commission Kroes is undertaking 
  her own review to promote competition in transport, energy 
  and financial markets.  Commissioner Hubner wants to channel 
  structural and cohesion funds to promote investment, R&D and 
  SMEs. Commission Vice President Verheugen responsible for 
  Enterprise and Industry talks of "stringent action plans" by 
  member states and creating a business-friendly environment. 
  Commissioner McCreevy does not want to consider any more 
  financial market regulations without first seeing an impact 
  assessment. 
 
¶21.  (SBU) There also are headwinds.  One is that the focus 
  becomes diluted.  This is already happening in several ways. 
 
¶22.  (SBU) One dilution mode is including pet projects of 
  member states and the Commission.  Moving from Kok's five 
  priorities (knowledge society, internal market, business 
  climate, labor market, environmental sustainability) to ten 
  in the Commission's Communication is a symptom of this 
  development.  Including "infrastructure" as a Central Policy 
  Area is a bow to the "growth initiative" of the Italian 
  Presidency that experts concede will have little impact on 
  economic growth.  As the Commission's recommendations makes 
  the rounds in various Councils and member state capitals, 
  relevant ministers are more likely to broaden the focus 
  rather than sharpen it. 
 
¶23.  (SBU) Widening the focus to encompass more on social 
  and environmental programs also is occurring. Even though 
  the Kok report called for having a limited number of 
  priorities, it included "environmental sustainability" over 
  the objections of those favoring a sharper focus.  The 
  Commission's Communication contains several social and 
  environmental objectives, like equal opportunity employment, 
  "inclusive labor markets," and promoting environmental 
  friendly technologies. 
 
¶24.  (SBU) These are worthwhile objectives.  Barroso's 
  logic, however, is that economic growth and job creation are 
  the foundations for ensuring retention and advancement of 
  Europe's model for social cohesion and environment.  Kok and 
  Sapir espoused this logic that as found credence in some 
  member states.  Some critics, however, complain that not 
  enough attention is given to these areas. 
 
¶25.  (SBU) On February 8 Luxembourg Labor and Employment 
  Minister Biltgen declared that "we must show that social 
  Europe still exists."  On February 9 the Commission obliged, 
  issuing a Communication on the Social Agenda that 
  "complements and supports" the Lisbon Action Plan by 
  promoting the social dimension of economic growth.  The 
  Social Agenda covers many of the same issues in the Action 
  plan, such as portability of pensions, generating jobs for 
  youths, and supporting member state pension and health care 
  reforms. Even so, rather than being viewed as complementary, 
  some interpret this Agenda as backing off from the primary 
  focus on economic growth and jobs. 
 
¶26.  (SBU) Allowing member states to draw up their own 
  programs risks weak national programs.    The logic is that 
  allowing members to draft their own programs will increase 
  member state ownership.  More to the point, they should 
  contain programs that may be realistic given local politics. 
  But will they be sufficiently ambitious?  While the 
  Commission's assessment could reveal an unfocussed or 
  unambitious program for what it is, the Commission publicly 
  has not been too harsh on member state inaction, suggesting 
  that once off track a member state is likely to stay off 
  track. 
 
¶27.  (SBU) Still, with careful leadership, a constructive 
  cooperative relationship with member states and a bit of 
  good fortune, the new effort could turn out differently. 
  One key is to build a constituency for change.  Luxembourg's 
  Prime Minister and President of the European Council who 
  intends to get the new program through the March Council 
  meet with leaders of industry, social non-governmental 
  organizations and EU environmental groups on February 10 to 
  help calm the waters.  Reforms gathering support in member 
  states suggest that, for whatever reason, constituencies for 
  change exist, even if they are not as vocal as others. 
¶28.  (SBU) The second key, as a senior Luxembourg official 
  pointed out, rests with member states.  They are responsible 
  for national economic reforms as well as implementing those 
  directives and regulations agreed at the EU level.  Given 
  the continued high levels of unemployment, looming costs of 
  ageing populations, and more intense competition within the 
  EU, it is hard to imagine member states not doing anything 
  over the next five years. 
 
Central Policy Areas for Lisbon Action Program 
--------------------------------------------- - 
 
¶29.  (SBU) The following are some brief examples from the 
  Commission's proposal for a Lisbon Action Program by Central 
  Policy Area, designating either the EC or member states (MS) 
  as having the lead for action: 
 
 
  ¶I.   Extend and Deepen Internal Market 
 
     EC Action: Free Market for Services by removing 
     barriers to trade and investment in services - adoption 
     of Services Directive by end 2005 
     EC Action: Free Capital Markets - propose directive for 
     payments system by June 2005; consultation papers on 
     financial services by May and on asset management and 
     mortgage credits by July; propose legislation on 
     clearing and settlement by early 2006; proposals for 
     single market in asset management by end 2006/early 
     2007 
     MS Action: Effective implementation and enforcement of 
     internal market directives 
 
  II.  Open and Competitive Markets Inside and Outside the EU 
 
     EC Action: Completion of the Doha Round by end 
     2006/early 2007 
     EC Action: International Regulatory and Administrative 
     Convergence to reduce barriers as follow up to US-EU 
     Summit 
     EC Action: Selective sector screening for competition, 
     e.g. energy and transport 
     EC Action: Reform of State Aid Architecture, less and 
     better targeted - State Aid Action Plan by March 2005 
     MS Action: Reduction of state aids and redirection of 
     aids to Lisbon objectives 
 
  III. Improve European and National Regulation 
 
     EC Action: Impact Assessment of legislation - 
     Commission to issue Communication on Better Regulation 
     and Competitiveness by March 2005; adoption of 
     guidelines for assessments by March 2005; adopt an 
     internal mechanism to conduct such assessments by June 
     2005; external quality review of assessments by end 
     2005; progress report spring 2006. 
     MS Action: National programs for impact assessments and 
     reduction of administrative burdens. 
 
  IV.  Expand and Improve European Infrastructure 
 
     EC Action: TransEuropean Network (TENs) program, 
     including 45 quick start projects to be undertaken by 
     2010 as agreed in 2004. 
     MS Action: Contributing to TENs projects in their 
     areas; transposition and application of liberalization 
     directives, e.g. energy services. 
 
  ¶V.  Increase and Improve R&D 
 
     EC Action:  Double EU budget and improve effectiveness 
     and coordination - Commission proposal by April 2005; 
     channel state aids to R&D (revision of State Aid 
     Architecture) 
     MS Action:  Increase R&D budgets to 3 percent of GDP 
  VI.  Facilitate Innovation 
 
     EC Action: Adopt EU wide patent; facilitate financing 
     for innovative enterprises  -revision of State Aid 
     Architecture and Communication on Venture Capital by 
     end 2005; foster regional innovation - strategic 
     guidelines for Cohesion Funds end 2005, operational 
     programs by end 2006;  foster ICT use - Communication 
     on eEurope 2010 strategy paper by June 2005; Action 
     Plan on Innovation by second quarter 2005, proposed 
     Program on Competition and Innovation by April 2005; 
     promote environmental technologies via R&D; promote 
     "green procurement" by removing environmentally harmful 
     state subsidies. 
     MS Action: Reduce cost of patents, promote technology 
     via public procurement; implement the European Climate 
     Change Program 
 
  VII.  Strengthen European Industrial Base 
 
     EC Action: Increase high-tech content of industry - 
     eEurope communication by June 2005 
     MS Action: Promote local and regional innovation 
     clusters; improve inter-face between industry and 
     research institutes; national strategy plans benefiting 
     from cohesion funds to be linked to national Lisbon 
     objectives. 
 
  VIII. Employment and Modernization of Social Protection 
  Systems 
 
     EC Action: Promote equal employment rights; 
     coordination of admission policy for immigrants - paper 
     by December 2005 
     MS Action: Set national employment targets; improve use 
     of active labor market policies, increase female 
     participation in labor force; reduce youth 
     unemployment, develop active aging strategies, reform 
     of pension and health programs. 
 
  IX.  Adaptability of Workers and Enterprises and 
  Flexibility of Labor Markets 
 
     EC Action: Ensure portability of occupational pensions 
     - adopt legislation by 2007; Communication with key 
     initiatives towards meetings employment and social 
     goals of Lisbon by February 2005. 
     MS Action:  Promote employment friendly wages and other 
     labor cost developments in line with productivity; 
     promote flexibility combined with security in labor 
     markets; reduce shadow economy. 
 
  ¶X. Investment in Human Capital - Better Education and 
  Skills 
 
     EC Action: Promote geographic and occupational mobility 
     - adopt Directive on Recognition of Professional 
     Qualifications in first half 2005; proposal for 
     European Qualifications Framework in 2006; promote 
     employment, education and training objectives via EU 
     funds. 
     MS Action: National strategies for life-long learning; 
     improve quality of vocational training, increase 
     investment in human capital. 
 
 
¶22.  (U) This message coordinated with Embassy Berlin. 
 
¶23.  (U) POC: James Wallar, Treasury Representative, e-mail 
  wallarjg2@state.gov; tel. 49-(69)-7535-2431, fax 49-(69)- 
  7535-2238 
 
Bodde