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Brussels sprouting same old stale economic plans

Opinion: It was an ambitious plan to make the European Union the world’s most competitive and dynamic knowledge-based economy within a decade. It aimed to boost innovation, productivity and economic growth across the bloc.
The EU’s strategy set bold targets for employment rates, research and development spending. It talked about the adoption of digital technologies. EU leaders hailed it as a transformative vision for Europe’s future.
There was just one problem: it did not work. Oh, and there was a second problem: it was launched more than two decades ago.
The strategy described above was the Lisbon Agenda, launched in 2000. Its lofty goals remained largely unmet as the target date 2010 came and went.
Fast forward to 2024, and we find ourselves in familiar territory. Mario Draghi, the former president of the European Central Bank, who pledged to do “whatever it takes” to stem the Euro crisis, has proposed a sweeping €800 billion (per annum!) investment plan for the EU. Draghi’s blueprint was commissioned by the European Commission.
Once again, the aim is to revitalise European competitiveness and drive economic growth.
Draghi’s plan, like its predecessor, places great faith in the power of coordinated EU action and strategic investments. It calls for massive outlays in green energy, digital transformation and advanced manufacturing. The goal, as ever, is to position Europe at the forefront of global economic competition.
Yet Draghi’s approach suffers from the same fundamental flaws that hindered the Lisbon Strategy. Both plans reflect a deep-seated distrust of market forces and an over-reliance on state-driven solutions. They prioritise top-down planning over the dynamism of private enterprise and entrepreneurship.
And so it makes sense to go back to the Lisbon Strategy to understand why it failed – and why Draghi’s plan is likely to meet the same fate.
Despite its grand vision, the Lisbon Strategy failed to close the competitiveness gap between the EU and the United States. Europe also lost ground to other world regions over the same period it wanted to become the most competitive place in the world.
By 2010, the failure of the Lisbon Strategy was painfully apparent. The EU’s average GDP growth between 2000 and 2010 was just 1.8 percent, far below the 3 percent target. Research and development investment remained at 2 percent of GDP, well short of the 3 percent goal. Even in areas where progress was made, such as employment, the results fell short of expectations.
The stark reality of this failure was acknowledged by European leaders themselves. In 2009, Swedish Prime Minister Fredrik Reinfeldt admitted: “Even if progress has been made it must be said that the Lisbon Agenda, with only a year remaining before it is to be evaluated, has been a failure.” Spain’s then Prime Minister José Luis Rodríguez Zapatero pointed to a fundamental flaw, noting that the non-binding character of the Lisbon Strategy contributed to its failure.
These candid admissions highlight the central weakness of such grand EU-wide strategies: they often lack the necessary mechanisms for enforcement and accountability. Member states can agree to ambitious goals at summits in Brussels, but without concrete consequences for non-compliance, these targets often remain aspirational rather than achievable.
However, the lack of proper implementation is only part of the problem. Perhaps it is even better that some parts of the EU’s grand programmes never got properly rolled out because they were the wrong things to do in the first place.
Whenever the EU tries to make itself more competitive, it starts from the assumption that large-scale public investment and EU-level coordination are the primary drivers of innovation and economic growth. That was what Lisbon was all about. Draghi’s new grand plan is more of the same.
But this EU view of the economy underestimates the role of markets and entrepreneurship in fostering genuine economic dynamism. That is also the biggest difference from other, more economically successful world regions.
At best, the EU’s economic policies do not work without causing any further harm. At worst, its plans often create additional layers of bureaucracy and regulation. These can stifle the very innovation and agility they seek to promote.
The EU’s repeated return to this style of economic strategy reveals a persistent belief in the efficacy of state-sponsored industrial policy. Yet the evidence for such approaches is mixed at best. Attempts to pick winners or direct the course of technological progress from Brussels have a poor track record. When was the last time the EU created a genuinely world-leading industry that can stand on its own without protection or subsidies? Actually, has this ever happened?
What all the EU’s grand strategies tend to overlook is the importance of economic fundamentals. Issues such as labour market flexibility, tax competitiveness and regulatory burdens often have a more direct impact on economic performance than sweeping investment programmes. Yet these less glamorous policy areas receive less attention in headline-grabbing proposals. And they are often also matters for the member states, not the European Commission in Brussels.
None of this is to say that EU-level action has no role in economic policy. Initiatives to deepen the single market, promote capital market integration or fund basic research can add real value. But these should aim to create the conditions for private-sector dynamism rather than trying to direct economic activity from the top down.
A more effective approach might start by asking what barriers are preventing European firms from innovating and scaling up. It might look at why Europe has struggled to produce tech giants on the scale of those in the US or China. The answers likely lie in areas such as Europe’s cultural attitudes towards entrepreneurship and failure.
Addressing these fundamentals could do more to boost European competitiveness than any amount of centrally planned investment. But that would require political courage, which might mean tackling vested interests and long-standing national practices.
It is all very well the EU wants to become more competitive – and it should. And not everything in Draghi’s report is bad.
For instance, Draghi’s emphasis on closing the innovation gap and his call for a more focused EU research and innovation strategy are steps in the right direction. His recognition of the need to streamline EU funding programmes and reduce bureaucratic hurdles for innovative companies also addresses longstanding concerns.
But before embarking on yet another grand plan, Europe’s politicians should reflect on the lessons of the Lisbon Strategy and similar past initiatives – and why they all failed.
And perhaps, just perhaps, they will realise that the EU’s own policies and regulations may have played their part in the slowing dynamism of the European economy. In which case, another grand plan designed in Brussels would be the last thing the continent needs.
Dr Oliver Hartwich is Chief Economist with the New Zealand Initiative, a business-funded think-tank. Its members are listed on its website here

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