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EU: U.S. Diplomat Suggests Brussels Could Do More to Spur World Economic Growth

With the world's economic growth flagging and the United States in a recession, many are looking to the world's other economic superpower, the European Union, for help in turning the tide. However, as the American ambassador to the EU noted in Brussels yesterday, the EU is not in a position to do so because a number of key reforms are either stalled or simply have not been set in motion.

Brussels, 17 January 2002 (RFE/RL) -- The European Union's inability to pull its economic weight in the world came in for some mildly worded but revealing criticism this week from the U.S. ambassador to the EU, Rockwell Schnabel.

Schnabel spoke yesterday before an audience comprised mostly of EU diplomats, officials, and academics at the Brussels-based Center for European Policy Studies. He noted that the United States and the EU together account for about half of the world's economy. He said that with the U.S. suffering from the fallout of the September terrorist attacks, Washington now expects the EU to do its part to help revitalize global economic growth.

"A key part of sustaining the momentum of the post-9/11 (11 September) spirit, as I mentioned, is revitalizing the growth in the world economy," Schnabel said. "And having this 50 percent ownership of that world economy, clearly we need to do it together. The subject is getting a great deal of attention in the United States."

Equally, if not more importantly, global prosperity -- or the fight against global poverty -- has become one of the key elements in U.S. President George W. Bush's foreign policy agenda, as the country attempts to root out international terrorism.

Schnabel left little doubt that this lends great urgency to Washington's expectations for support in giving a boost to the world economy: "I don't have any illusions of how easy it is to turn this world economy around. Indeed, in the short run, even a successful effort to jump-start the economic prosperity will not solve all of the world's problems. But it is a precondition for dealing with these problems, we feel. And here the United States and Europe have a very special collective role to play."

Schnabel said economic strategies already in place in both the U.S. and Europe remain essentially sound but not fully implemented.

Revealingly, he then went on to indicate how decade-long U.S. efforts to reform economic regulatory frameworks provided consumers and businesses with a more transparent setting where individual and property rights are protected, a setting flexible enough to encourage innovation. This, Schnabel said, resulted in considerable growth and job creation -- to such a degree that in the 1990s, the United States alone was responsible for 40 percent of world's total economic growth.

Here, Schnabel refrained from making a direct comparison with the EU.

The criticism was more than implied when Schnabel tackled the EU's record in the 1990s. He noted that the EU underwent similar economic strains to which it responded "in its own manner." Certain sectors, such as telecommunications and airlines, were liberalized, resulting in new services for consumers and new markets for industry.

But, Schnabel pointed out, within the EU the implementation of economic reforms has been "much more uneven" than in the U.S. Some countries were quick to embrace the more entrepreneurial, competitive economy. But "many others," he said, have made little progress due to their desire to protect historic business and social models. As a result, the rate of sustainable economic growth in the EU remains far below that in the United States.

These criticisms are not new in the European Union itself. The European Commission -- in charge of promoting the development of the EU's Single Market -- has for years vainly attempted to liberalize the bloc's energy and transport markets.

Yesterday, the president of the commission, Romano Prodi, indicated his patience is wearing thin. He said he is considering invoking a little-used commission prerogative to force community-wide liberalization of certain markets, regardless of national objections. This threat is widely seen as being aimed at France, which has been keen on retaining control over its energy market.

Schnabel yesterday said he believes the EU's so-called "Lisbon framework" of economic reform -- named after the March 2000 Lisbon summit, where it was conceived -- will lead to "comprehensive economic restructuring" in Europe.

This diplomatically ignored the fact that even by the kindest of estimates, the Lisbon agenda has gotten off to a bad start.

At the Lisbon summit, EU leaders committed themselves to making the EU the world's most competitive and dynamic "knowledge-based" economy. Two years on, a report adopted by the commission yesterday considers it necessary to bluntly remind EU member governments that decisions by leaders taken at summits must be turned into reality. The report cites interminable national disputes as a major factor in stifling reform. It says that, despite a number of new initiatives, the EU has still not caught up with the U.S. where it counts -- such as investments in research and information technology.

The report notes that in Japan, three per cent of GDP is invested in research and development and that the figure for the U.S. is 2.6 per cent, while in Europe, the same indicator stands at 1.9 per cent.

The European Commission warns that the EU's March summit in Barcelona -- traditionally dedicated to economic topics -- is the bloc's last chance to get the restructuring effort under way if it wants to keep the Lisbon promise.

Schnabel finished his gently worded criticism of the EU's economic performance by noting that a major area of success for the United States in the last two decades has been the creation of "deep and liquid" capital markets. This, said Schnabel, allows cheaper capital to be made available to smaller companies, which are "often the engine of growth of mature companies."

Schnabel noted that this is particularly significant in the context of rapid technological change, since it's pointless to encourage startups if there are no funds available to get them going. He noted that the EU has yet to initiate common capital market reforms.

"That," he said, "may be one reason that more than three times as many Americans as Europeans participated in a startup in 1999."