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There is a broad consensus among economists and policymakers concerning two major phenomena: that the European Union’s economic performance has not matched the ambitions formulated in the Lisbon agenda of 2000, and that the EU has not reaped the same benefits from modern Information and Communications Technology (ICT) as has the United States. The EU’s economic performance has been particularly disappointing given the strong expansion of the global and US economies in recent years. ICT has not led to productivity improvements and economic growth in the EU to the same extent as it has in the US, thus pointing to one reason for the comparatively weaker economic performance of the EU. Policymakers in Brussels and across Europe have acknowledged this situation and reacted with a number of policy initiatives at both the EU- and national level.

French economic performance had been very satisfactory until the mid 1970s; since that date, however, we have entered a period of much slower economic growth, not only in absolute terms but compared to the US benchmark. Table 1 gives the gap between growth rates of GDP/capita for France and the US. The growth rate for France has been lower than the US in all of the three subperiods 1980–1990, 1990–2000 and 2000–2004.

The late 1960s and early 1970s can now be described as the heyday of demandmanaged macro-economic policy making. That certainly was the case in the Netherlands. The combination of Keynesian oriented demand management policies, the increasing relevance of the CPB1, the Dutch Bureau for Economic Policy Analysis, and the use of tailored macro-models had created a climate, within which many economists, policy-makers and civil servants believed they knew how the economic development could be steered in an optimal way. How disappointed it must have been during the 1970s and early 1980s, when it became clear that Keynesian-oriented demand management policies could not prevent the return of a long period with sluggish growth, rising unemployment, high inflation rates and increasing budget deficits. Whatever policy was applied in those years – more government expenditures, lower taxes, investment subsidies and the like –, they all failed in restoring economic development back to its stellar performance of the 1960s. The Keynesian paradigm did not work properly anymore, a message which was, at that time, difficult for many people to accept. For a long time, the old views were still prevailing but at the end of the 1970s new ideas burst through, thereby demolishing much of the confidence people had in economic policies and government interventions in general.

This short intervention does not present details of the structural reforms that took place in Greece recently. Nor does it include an assessment of these or explanations for why more extensive changes did not take place. Instead, it suggests certain product market reforms that could contribute to decreasing the gap in per capita income between Greece and the EU-15.

It is a long established stylized fact that the price level, expressed in the same currency unit, is lower in less developed countries than in more developed countries. The eight new European Union (EU) Member States of Central and Eastern Europe (CEE) are no exception to this rule. The price level of CEE countries, converted into euro, is well below the price level of the euro area average (Figure 1). At the same time, GDP per capita figures expressed in Purchasing Power Standards (PPS) in CEE show striking similarities with overall price levels in CEE at first glance, given that they are also far below the levels observed in the euro area in 2005. Slovenia and the Czech Republic are the only countries which is close to the level of economic development of the least developed old EU countries such as Greece or Portugal.

If I had to pick the three problems that have caused the European Union the greatest problems over the past thirty years, I would pick the constitutional issue, enlargement and the problem of settling on a coherent economic policy framework. Many citizens miss an effective system of economic governance in the Union in its current form, and most would argue that this is of more direct relevance to them than adding extra layers to the governmental structures that they already have. What matters to them is the effectiveness and coherence of their economic policies; a clearer case for market and structural reforms that could be used to enhance those economic policies; and a more effective way of handling enlargement when the new member states are increasingly different from the existing members in their economic and social structures.

This note briefly describes the current degree of integration of Switzerland in the EU and argues that the reasons for it not becoming a full member any time soon may be at the heart of the current stagnation of the EU constitutional process. However, Swiss membership may come about under conditions that would promote the European idea in an alternative way, emphasising the role of democratic participation of its citizens and more federalism.

In recent years, many experts and politicians have started talking about a ”crisis” in Europe. This view has been supported not only by the latest negative developments in the European Union represented by the refusal of the Constitutional Treaty both by the majority of the French and the Dutch citizens or the unholy and unproductive debate on the next financial framework covering the period between 2007 and 2013. Protracted sluggish growth in the key member countries, stubborn and high level unemployment, the lack of and unwillingness to reform as well as the emerging new protectionism in some member countries provide evidence which seems to strengthen the arguments and the general feeling of a ”crisis”. Moreover, the latest enlargement, the really historical development in Europe in the last decade, has also been assessed responsibility for the deadlock of the integration process, the new challenges and the declining importance of the European economy.

In March 2000, the EU Heads of States and Governments agreed on the so-called to make the EU "the most competitive and dynamic knowledgedriven economy by 2010". This goal must be considered extremely challenging and extraordinarily difficult to be accomplished. From the point of view of economics, the following major issues have to be addressed: 1. First of all the decisive economic elements and forces responsible for the achievement of the agenda must be identified. 2. An adequate economic approach should be developed which explicitly includes these elements. 3. For the application of this theoretical approach on the empirical realm the right methodological concept must be found. 4. The fourth major issue is to apply this operationalization to Europe. A severe difficulty here stems from the fact that Europe is not a unity composed of homogenous components but a collection of heterogeneous countries. Accordingly, the method chosen should focus on detecting patterns of similarities and dissimilarities among the countries under investigation. 5. This discovery of patterns is a necessary step for a further analysis which focuses on the manifestation of success in the sense of the Lisbon Agenda and compares patterns of similarity with patterns of performance.

The expected declining population of working age and the increase in the dependency ratio in Europe is likely to have serious consequences for the growth of per capita income in the next decades. The macroeconomic consequence of demographic pressure is exacerbated by a PAYG pension system, which currently is the dominant source of intergenerational income transfer in the EU. Currently ten workers finance two and a half retirees, in 2050, ten workers will have to finance five retirees with their pension contributions. This has serious consequences for wage costs in coming decades if no reforms are undertaken. As shown previously, leaving the generosity of the PAYG system unaffected would require an increase in pension contribution rates from currently about 16% to about 27% in 2050, taken as given the demographic trends currently projected for the EU. Given the still high levels of unemployment in the EU and the fact that non wage labour costs are partly blamed for low employment rates in Europe, letting the current pension system in place does not seem to be an attractive policy option since it drags down the employment rate. There are two radically alternative fiscal strategies of financing additional pension expenditures if one wants to avoid ever increasing pension contributions. A first alternative could be seen in a switch to debt financing of additional ageing related pension expenditure requirements and freezing the replacement rate at current levels. An alternative strategy would be to partially move to a funded system, with a government guarantee of accrued pension rights for current pensioners and certain well defined age cohorts within the pool of current workers.