Europe’s Competitiveness Shell Game

BRUSSELS – For seasoned observers of Europe’s economy, the most recent European Union summit delivered a bizarre sense of déjà vu. Little more than a decade ago, European leaders announced to great fanfare the “Lisbon Agenda,” a policy blueprint to make Europe “the most competitive, knowledge-based economy in the world.” The new “Competitiveness Pact,” proposed at the EU summit by France and Germany, did not make the same pretensions to global grandeur, but was instead sold as a step required to ensure the survival of the euro.

With the exception of what appears to be a covert effort to force EU countries to raise corporate taxes to French and German levels, there is ostensibly nothing unreasonable in the Competitiveness Pact. Raising the retirement age to 67, abolishing wage indexation, and compelling countries to enshrine a debt brake in their national constitutions are reasonable measures to enhance competitiveness and restore confidence in the euro.

Unfortunately, however, government leaders have apparently learned nothing from the lessons of the failed Lisbon Agenda. Indeed, the current plans seem doomed to fail for two reasons.

First, a credible policy agenda needs firm targets with clear deadlines. But, notwithstanding their leadership pose vis-à-vis the Competitiveness Pact, the French have already distanced themselves from the commitment to raise the retirement age to 67. According to Bloomberg, a French official told reporters at the summit that there was no question of that after the retirement age was lifted to 62 from 60 last year. Given the huge public protests sparked by that move, the official’s statement seems eminently believable.