In defence of missile defences?
by Tomas Valasek

For those spoiling for another good transatlantic fight, the headlines from last week’s EU summit must have come as manna from heaven. “Chirac hits at US missile plans,” read the headline in the Financial Times after the soon-to-be-departing French leader addressed reporters in Brussels. “Cold War over missile defences,” wrote Le Monde, referring to US plans to place missile defence sites in Europe. Add to that the apparently critical words by Angela Merkel, the German chancellor, from earlier in the week and a new storm would appear to be brewing over the Atlantic.

Unfortunately for the hawks on either coast, closer reading of the actual statement shows a different, much calmer picture. Jacques Chirac did warn against needlessly ruffling Russia’s feathers, as did Angela Merkel. But little in the way of outright opposition to American plans is in evidence among European leaders.

There are two good reasons for that. As with the Iraq war, missile defences are likely to divide Europe itself. Warsaw, Prague and London have all expressed interest in hosting parts of the US system and would naturally oppose any attempt to build a common European position on the basis of opposition to missile defences. Most of the cost of a bruising argument would thus be borne internally, within Europe.

But just as importantly, many EU member-states are hedging their bets, not wanting to rule out the possibility of building a missile shield for Europe as well. The majority of EU member states – the 19 that are NATO members – already approved a 2006 study showing that such a programme is technologically feasible. That does not by itself mean that an allied missile shield will or even should be built: there are differences within NATO as to the gravity and urgency of the missile threat. But the fact that NATO countries commissioned the study at all shows their shared concern over Iranian and North Korean missile plans.

So while a tactical, politically-driven stance against US plans may seem tempting it would be difficult for any European capital to be simultaneously for and against missile defences, which is exactly the position in which those EU member-states that are also in NATO would find themselves. For that reason, chiefly, robust opposition to US missile defence plans is likely to be limited to a handful of European countries.

That is not to say that a debate on the system should not take place amongst European countries, quite the contrary. The discussions so far have already raised interesting questions about two key choices for the Europeans: How should they relate to Washington? And just how much solidarity can and will they show towards Moscow?

On the first point, German chancellor Merkel was absolutely right to say that Washington needs to use NATO more assertively in selling its plans for a missile shield. In saying so, Merkel is in effect echoing Gerhard Schröder, her predecessor, who - in one of his last speeches as chancellor in 2004 - urged allied leaders to involve NATO more in broader policy debates and to start using it to fashion common strategies and threat assumptions, not just military plans. This, Schröder and others argued, would be the most effective way to revitalize an alliance reeling from the aftershocks of Iraq. It could also give Europe a better foreknowledge of, and a bigger say in, US defence plans and strategy, thus reducing the chance of fratricidal arguments like those that shook NATO in 2003. The alliance is already moving toward broader policy debates. It plans to draft a new version of its key guiding document, the ‘Strategic Concept’, by 2009 and in fact, it has already debated US missile defence once, in February. Washington should continue to offer its future military plans up for a robust discussion at NATO, and it should do so early, to allow for a fruitful talks rather than a simple briefing. It may be rewarded with a greater sense of usefulness and solidarity among allies.

It is the European Union that comes out the worse for wear from this debate so far. When Moscow threatened Warsaw and Prague with military reprisals if they allow US missile defences on their territory, Paris and Berlin responded by, in effect, siding with Moscow against their fellow EU member states. While the French and German positions were nuanced – arguing for more consultations with Russia and not directly addressing Russian threats – the Czechs and Poles will no doubt feel that their EU brethren showed far too little solidarity given the gravity of Russian statements. This will do little to convince them to show more faith in the EU's security and defence policy, or to back Merkel's plans to revive talks on the EU's constitutional treaty and the creation of a European foreign minister.

Tomas Valasek in director of foreign policy and defence at the Centre for European reform.

What is wrong with Lisbon?
by Aurore Wanlin

The Lisbon agenda embodies a paradox. Progress made by the member-states has been slow and patchy. The German presidency in the first half of 2007 is playing down Lisbon, fearing that the process has been discredited by the EU’s failure to meet its targets. Commentators often cite Lisbon as an example of the mismatch between the EU’s grand ambitions and lack of delivery.

However, all national governments in the EU agree on the need to turn the EU into a competitive knowledge-based economy. They agree that to boost innovation will require not only more spending on research and higher education, but also more competition, flexible labour laws, and efficient financial markets.

Meanwhile, the rejection of the EU constitutional treaty in the Dutch and French referenda has made it clear that citizens will hold the Union responsible for member-states’ failure to deliver growth and jobs. Therefore delivery on Lisbon is also crucial to the future of the European Union.

So why is the pace of reform so slow? In 2005, the EU revamped the Lisbon agenda to address some of its weaknesses: it streamlined procedures and targets, clarified the respective roles of the Commission and national governments, and asked all EU governments to draw up national reform plans to increase ‘ownership’. However, according to many commentators, this institutional fix is unlikely to make it easier to do economic reform in Europe, for at least three main reasons: the difficulties of co-ordinating national reforms at the EU level, political obstacles to economic reform and new forms of poverty that feed popular resistance to change.

There are two main rationales behind the Lisbon agenda. The first is that co-ordinating reform at the EU level allows member-states to learn from each other and spreads best practice. The second is that economic reform in one country has a beneficial impact on other member-states’ economies. However, EU governments have over-estimated these two effects. It is not that easy to transpose economic reforms from one member-state to the other. A policy’s success depends on economic, political, and institutional factors that vary from country to country. The spill-over effect of structural changes, even within the monetary union, is often not visible or strong enough to create a real incentive for governments to co-ordinate national reform plans.

Economic reform is always politically difficult. The impact of policy changes can be unexpected and delayed, which makes it hard to explain and sell reforms to voters. Structural changes also create winners and losers, but while the losers are often small, well-defined and vocal groups, the potential winners are too numerous and amorphous to organise. This is a particular problem in countries like France or Germany where already strained public budgets make it difficult to compensate losers. Most importantly, national governments often lack clear strategies for economic reform. Their plans look more like a shopping list than a consistent programme. National governments should better prepare their reform programmes, prioritising the reforms on which they want to spend most of their political capital, starting with those that facilitate future changes and defining a clear timetable.

A third factor that makes economic reform difficult is the emergence of new forms of poverty and the absence of appropriate policies to address them. A lack of political leadership is often blamed for the failure to reform in Europe. But a Big Bang approach is not necessarily the best way to sort out a country’s economic problems. People resist change as they increasingly believe that their situation and that of their children is getting worse and political action has become inefficient. This resistance is fuelled by the emergence of new forms of poverty resulting both from globalisation and technological change and their impact on low-skilled workers and middle classes. The problem is that the welfare state was designed for the industrial society of the 70s that no longer exists. Social policies often fail to help today’s new poor. Unless national governments manage to find a way to address this issue popular resistance is unlikely to wane in the short-term.

Aurore Wanlin is a research fellow at the Centre for European Reform.

The future of the single market
By Katinka Barysch

The EU puts out a lot of reports, studies, evaluations and announcements. So far this month, the Commission has released around 80 major documents. Many of them are too specialised, too long or simply too dull to attract wider interest.

One recent publication stands out. On February 21st, the economics team of the Commission’s ‘bureau of European policy advisors’ – now headed by Roger Liddle, previously an advisor to Tony Blair and Peter Mandelson – released a report on the future of the single market. Granted, advisors can speak more freely than bureaucrats. But the way this report is written shows how the EU should communicate.

* Accessible. The subject is complex, yet the document is easily understandable for non-economists. The authors steer clear of euro-speak and jargon. Moreover, while many EU documents are abstract, this one is full of examples. No waffle about “reaping the full benefits of the single market”. Instead, a list of examples: the single market allows you to go to hospital in other EU countries; it gives you the right to sue any company that sells faulty products; it has brought you low-cost air travel; it has reduced your mobile phone bill.

* Focus. This paper is about the single market. Period. It is not about social policy, the environment or the future of Europe. Absent is the EU’s unfortunate tendency to placate interest groups by lumping together too many issues. What the report does do is to look at how the context of European economic integration has changed, through globalisation, eastward enlargement and technological change.

* Realism. People tend to be cynical about official information and analysis. Achievements are overplayed, failures omitted. Liddle and his colleagues are honest. “The single market brought real benefits”, they say “but it has not led to a transformation of European economic performance.” Price convergence has stagnated, so has the share of intra-EU trade in total exports and imports. Only if problems are clearly identified can the search for solutions begin in earnest.

* Critical analysis. The intentions of the EU are usually good, but this does not guarantee optimal results. Yet the EU is notoriously bad at abolishing defunct laws and institutions. This report shows that single market legislation often embodies the interests of big companies. It risks becoming an impediment to innovation and competition from smaller rivals.

* Fresh thinking. Politicians and EU officials regularly call for the “completion of the single market”. Wrong, say Liddle and his colleagues. “The single market is an on-going process rather than an event.” It can never be “complete”. The initial rationale was to tear down trade and regulatory barriers to allow European manufacturing companies to reap economies of scale in a larger market. But future EU growth will not come from mass manufacturing. It will be driven by services, high-tech companies and start-ups. For them, removing remaining barriers or harmonising regulations won’t do. Instead, the single market needs to encourage innovation and research, facilitate venture capital and ensure competition.

* To-do list. Here, the bureau of European policy advisors does exactly what its name implies: it advises on policy. If the single market is to deliver benefits in the future, the EU and its governments need to: 1) prioritise and give up the notion that all barriers for doing business are equally important; 2) rely less on detailed directives and more on framework regulations that work in a fast-changing environment and take account of the administrative weaknesses of many new member-states; 3) adopt a sectoral approach that differentiates between the needs of say, the energy sector and healthcare; and 4) properly co-ordinate single market initiatives with policies on competition, trade, environment and so on.

The nature of this report should remind the entire Commission of one of its key roles: to provide independent, fresh and forward-looking analysis and policy ideas. But the European Commission’s own take on the future of the single market – published the same day as the bureau’s report – succumbs to some of the old failings of EU communication. Maybe it should be the advisors’ report rather than the Commission document that goes to EU leaders at their forthcoming spring summit and that forms the basis of the EU’s comprehensive single market review that comes out in the autumn of 2007.

The two reports in the future of the single market can be found on

http://ec.europa.eu/dgs/policy_advisers/publications/
docs/single_market_yesterday_and_tmorrow_en.pdf

http://ec.europa.eu/internal_market/strategy/
docs/com_2007_0060_en.pdf

Katinka Barysch is chief economist at the Centre for European Reform.