BY GARETH HARDING
On Tuesday, as European Union leaders gather in Brussels to find ways of kick-starting the bloc's sluggish economy, free-market think tank The Stockholm Network is organizing a debate entitled "Is Europe Doomed?"
There are plenty of analysts on both sides of the Atlantic who would not hesitate to answer "yes." "The European social model is struggling to survive in the age of globalization," said Johnny Munkhammar, a director at the Swedish think tank Timbro. "Healthcare systems that siphon huge sums of money from the taxpayer are paying few dividends; pension systems that rely heavily on state subsidization cannot cope with the ageing population, and government taxation to pay for the vast array of social services is failing to deliver."
Munkhammar's gloomy conclusion? "If the systems are not changed, the Western world will face a 'fiscal Armageddon.' Welfare services will become more expensive and demand a continuous increase in resources. The gap between existing and demanded welfare will grow exponentially and large-scale discontent will follow. The culmination of this is the end of the European social model and the end of big government."
There is no shortage of statistics to back up these views. In 2004, average growth in the 12 EU states that share a single currency was a meager 2.2 percent, compared to 4.3 percent in the United States, 6.4 percent in China and a whopping 9 percent in China. EU productivity levels, which grew quicker than the United States for most of the post-war period, have entered into a sharp decline since the mid-1990s, with U.S. productivity growth now twice as fast as in Europe.
America is also investing more in its future, spending $130 billion more on research and development a year than the 25-member EU and producing almost twice as many university graduates per head.
It is clear that the Union is not going to meet the two central goals of the Lisbon Strategy, an ambitious package of economic reforms launched five years ago in the Portuguese capital. These are to develop the world's most competitive economy by 2010 and ensure average annual growth of 3 percent, leading to the creation of 20 million jobs by the end of the decade.
But there are a growing number of analysts who believe rumors of the EU's demise are grossly exaggerated and that the European economic model is healthier than it appears.
"Europe's added value comes from the quality of life it delivers rather than its growth rates, but even on the traditional merits of economic performance, Europe's record is far more respectable than its American critics imply," writes Mark Leonard, author of 'Why Europe will run the 21st century."
Leonard says the U.S. economy has been driven by a growing population – U.S. growth averaged 1.2 percent a year in the 1990s, compared to 0.5 percent in Europe – and longer working hours – Americans worked an average of 866 hours a year in 2003, compared to 691 in the EU – rather than better economic performance. Take Germany, which has struggled with the costs of reunification, out of the economic equation and the British author says growth rates in Europe and America are almost identical.
Jeremy Rifkin, the American author of "The European Dream," also believes that raw economic data does not do justice to a European way of life based around high taxes and unemployment but long holidays and generous welfare systems. "If you measure the good life by the paycheck, we are more advanced than you are," he told an audience of Brussels policy makers last month. "But if you want quality of life, education and healthcare, go to Europe."
Although it gives EU states a sickly "C" grade for implementing the Lisbon strategy, the London-based Center for European Reform says there are "three good reasons for cautious optimism about economic reform in the second half of the decade."
Firstly, despite the plethora of over-ambitious goals and missed targets, much progress has been made since 2000. Energy, telecoms and financial services markets have been liberalized, red tape has been cut in many countries and most EU members have passed labor market and social security reforms.
"Slowly but steadily, the EU is moving forward in virtually all the areas covered by the Lisbon agenda," conclude Alasdair Murray and Aurore Wanlin, authors of the fifth edition of the Lisbon Scorecard.
Secondly, the CER researchers believe that the political climate for economic reform is more favorable halfway through the Lisbon process than at its inception. Almost every EU state – including such laggards as France and Germany – is pushing through painful welfare reforms and some countries have undergone such a dramatic conversion in the last decade that they have leapfrogged the United States.
Finland is the world's most competitive country, according to the World Economic Forum, and Denmark, Sweden, Ireland and the United Kingdom do not lag far behind. The United Kingdom, Finland, Denmark, Sweden and the Netherlands also have higher employment rates than the United States, with over 70 percent of the population in work.
Finally, the CER report points out that new European Commission President Jose Manuel Barroso has made "growth and jobs" the key priority for his five-year term of office. This has been welcomed by the business community, but many labor and green groups fear the emphasis on economic growth will come at the expense of high environmental standards and the coveted European social model.
Neither side need fear that economic growth and environmental and social protection is a zero-sum game. The CER's Lisbon "hero" is Sweden, a country that tops almost every global economic league table but also has some of the highest taxes, cushiest welfare programs and strictest environmental laws in the world.