Europe is already changing

The overall shape of change required in Europe is therefore clear. Liberalization of markets but not
to the extent of dogma, governments social roles reformed and focused, but not dramatically
reduced. Reform but not rejection of the European model. Common themes at European level but
precise actions primarily at national level. The good news is that much of that change is already in
hand. National policies, to different degrees in different countries and from different starting points,
are evolving towards a more liberal approach; and the thrust of the European Unions
interventions, far from opposing liberalization, has been in favour of extending it. These assertions
will surprise some British readers, for there is a prevalent Euro-sceptic belief that Europe is
incapable of change and that the European Commission is committed to resisting it. But the
evidence is clearly to the contrary.
Market liberalization has always been a key objective of the European Union and before that of the
European Community. The Unions single-market vision is essentially a liberal capitalist one and
expressed in a relentless programme to create more competitive and open European markets. That
programme was intensified still further by commitments made at the Lisbon summit in March 2000.
Telecoms liberalization is already well advanced but has now been reinforced by measures to ensure
competition in local access. Postal services will increasingly be liberalized. All barriers to nonfinancial services are to be removed by 2002 and barriers to financial services by 2005. More open
competition in public procurement was also agreed. The progress is sometimes frustratingly slow
but over the long term the achievement is clear and indeed dramatic.
Privatization has progressed in parallel with liberalization, the arguments presented in its favour
earlier in this article now accepted by all European governments. Christian and social democratic
governments in Germany and Netherlands have privatized their post offices -in the US it remains in
government hands. Fifteen years ago the French state held majority control stakes in thirty-seven of
the top fifty enterprises in France; it now controls twelve and the number will fall further. No one
fifteen years ago would have predicted that the French state would execute a huge privatization
programme exiting such commanding heights of the economy as banking and telecoms but under
governments of both right and left it has done just that -$40 billion of assets privatized since 1995
alone. Capital markets are changing rapidly with aggressive takeovers and increasing pressure on
management from institutional investors. Europe is already far closer to replicating Americas
competitively intense single market than it was ten years ago and it will get closer still in the next
few years. In product and capital market liberalization Europe is already doing most of what is
required
Progress in labour markets is slower because change there is more contentious. But there too
change has occurred. The Netherlands was among the first to change, pursuing labour-market
reforms from the mid-1980s onwards which have helped drive unemployment down to only 2.9 per
cent through entirely predictable means - more benefit conditionality, more part-time jobs, more
face-to-face services. Spains reforms of its employment protection laws have helped cut its
unemployment rate from 22 per cent to 14 per cent. France may in headline terms have gone the
other way with the imposition of the thirty-five-hour week, but to the surprise of politicians, trade
unionists and employers this has been the catalyst for the introduction of more flexible working
contracts such as annual-hours agreements. Further change remains essential. There is still too
much wishful thinking that structural and unemployment problems can be solved entirely by skills
initiatives, and too facile an assumption that high-tech jobs will be the main key to job creation: the
blunt facts that if we want full employment we need bag packers in supermarkets and that the

French minimum wage is a barrier to their employment are still in the too-difficult file. But the
direction of change is the appropriate one and unemployment levels are falling throughout Europe.
In other areas of regulation, meanwhile, the approach is increasingly sensible. There is no appetite
for a wholesale assault on environmental, health and safety, or consumer protection legislation nor
on social legislation such as maternity and parental-leave rights or equal opportunities. But there
does not need to be. Instead what was agreed at Lisbon was a specific focus on the procedures
involved in setting up companies. And where active European Union-level involvement is needed to
create single market conditions, appropriate action is also in hand - the take-off of electronic
commerce across Europe will be facilitated by the proposed e-commerce directive, allowing firms to
provide online services across Europe while normally complying only with the laws of their home
country.
Finally, on tax and spend levels Europe is also changing. Frances socialist government is
committed to slow but steady reduction of taxation as a percentage of GDP and is cutting its
corporate tax rate from 40 to 33 per cent. Germany is cutting the top rate of income tax from 51 per
cent to 42 per cent, its corporate tax rate from 40 per cent to 25 per cent (effectively about 35 per
cent once local levies are added). The Netherlands is cutting its top income-tax rate from 60 per cent
to 52 per cent. No government, it is true, is committed to radical dismantling of its welfare state, to
tax competition with America by cutting tax and spend levels below 35 per cent of GDP. But that is
just as well for that would be, both unnecessary and undesirable.
None of this implies that everything is rosy. Further reform of labour markets is almost certainly
needed in some countries. Reduced taxation burdens on labour may be desirable, and more radical
redesign of tax systems may be necessary to make that possible. But change is already under way,
and that change is likely to offset the balance in Americas economic favour which the evolution
of technological and economic structure appears to have produced. Europes performance is not
that of a disaster zone faced with American perfection: much of its present performance gap is likely
to close naturally as autonomous technological developments produce their impact: and much of the
change required is in hand already. Europe should have the confidence to see reform not rejection of
its model as the way forward.
With thanks to Northants situated industry analyst Northampton Hub Search engine optimisation for
their contribution on the piece.