Getting Europe, Inc. Moving Again

In 2000, the European Union unveiled its Lisbon Strategy which aimed to make the EU the most competitive economic region on the globe by 2010. That ambitious goal has been basically abandoned by EU leaders, since in 2006 many members of the bloc are still struggling with anemic growth rates.

"We are going to have to try very hard if we want to at least reverse this trend by 2010," said Verheugen.

Europe is trailing on international markets regarding productivity, growth and employment rates, he said, putting the blame on a lack of clear priorities, programs and guidelines within the 25-nation club.

Also hurting growth are rules set forth by the bloc's national governments, which hinder the free movement of goods. The patchwork of complicated and differing regulations across the continent has put an undue burden on companies, Verheugen said.

Part of his approach to untying the Gordian knot is an initiative he kicked off last year to reduce red tape in the EU. While the program is still in its infancy, Verheugen said it has had some effect.

"For example, all new European legislation, all new proposals must pass a comprehensive cost-effectiveness and bureaucracy test," he said. "That means, what are the real cost effects for a company and will it create new levels of bureaucracy?"

Competition rules

At the same time, however, Verheugen has called on companies to adhere to EU competition rules, and criticized the protectionist measures that some national governments have put in place to prevent takeovers by foreign companies.

In the last few weeks, France has intervened to prevent a planned takeover of the French utility Suez by Italy's Enel. Madrid has objected to the bid by Germany's E.On for the Spanish power company Endesa.

"The wave of national protectionism and even cheap populism is passing through Europe that is very worrying," he said. "It runs against the idea of creating one large European domestic market whose development is determined by market forces and not by politics."

The idea of a unified domestic market has been an issue that the EU has had trouble with, especially regarding the issue of services. It is a topic that worries both companies and employees, who are worried about foreign workers offering their services at lower costs and putting downward pressure on incomes and overall living standards.

The European Parliament has already watered down the EU services directive, although Verheugen says it is essential that service providers from all over Europe are free from discrimination. He added, though, that service providers must do business under the rules of the country in which they are performed, particularly wage and social security regulations.

He warned member states about opposing the services guidelines too strongly, since provisions for the free movement of labor go into effect in 2011. By that time, the restrictions placed upon the 10 member states which joined the EU in 2005 will have expired and the entire European market will be open for both workers and services

R&D essential

Despite the problems about staying competitive, Verheugen called on member states and companies to invest more heavily in research and development. Studies have shown that investment in these areas leads to better economic performance. He cited the example of Japanese carmaker Toyota, whose company philosophy puts first priority on the qualification and motivation of its employees followed by a strong emphasis on research, development and innovation.

"The company doesn't even mention its double-digit rates of return, since those are simply a result of this approach," he said. "A few German automakers could learn a thing or two from that."