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News Analysis: Europe plans hi-tech approach to growth

OECD looks at how to copy American success
MINISTERS FROM the world's richest countries are planning to launch a study into how to boost growth by tapping into new technology.

The move, expected to get the go-ahead at the OECD ministerial meeting in Paris today, is intended to learn and share the secrets of the phenomenal success of the American economy. US growth in recent years has been in stark contrast to the sluggish performance of the European economies.

Dominique Strauss-Kahn, France's Finance Minister, said the technological revolution was one of the pillars on which renewed growth in Europe must rest. He spoke of the emergence of a "new economy".

Economists at the influential think-tank, whose membership is made up of the world's 29 richest countries, will spend the next year exploring whether the US has indeed entered a "new era" of economic performance,andwhy Europe has not shared it.

The organisation's officials include the UK among the laggards. They believe productivity levels in Britain are approaching continental European levels but at the same time European performance has been deteriorating. One possible explanation for the UK's low productivity, they believe, is the extreme volatility of the exchange rate. "Big swings in the exchange rate can have real effects, and can accentuate the decline of the industrial sector," said one.

But the OECD believes the UK's macroeconomic performance has improved, with greater stability in policy. In its recent half-yearly outlook, the organisation downgraded its forecast for UK growth this year to 0.7 per cent, but said this would be a shallow downturn by past standards. Next month's annual employment report from the OECD is likely to give a broad welcome to Government welfare to work measures.

The Treasury minister, Patricia Hewitt, emphasised the importance of macroeconomic success for the Government's social agenda. "In the modern economy we do not have to choose between social cohesion and economic dynamism. They are interdependent," she said.

In their first day of discussions yesterday, ministers agreed the world outlook had improved in recent months. But Janet Yellen, the head of the US Council of Economic Advisers, warned that the US could not continue to shoulder the burden of growth indefinitely.

"The disproportionate contribution from the United States could ... create difficulties, if not corrected over the medium term by stronger investment and growth in other countries to reduce global imbalances. Among these difficulties would be a renewal of protectionist pressures," she said.

Meanwhile, Charlene Barshefsky, the other US representative in Paris, raised the level of rhetoric over the "beef war" and insisted sanctions on $900m of European goods would go ahead in August in retaliation for the beef ban. "We don't have a sense that Europe has any serious intention to negotiate a solution," she said, after her meeting with Sir Leon Brittan, Europe's trade commissioner.