This Barcelona summit matters less than Mr Blair would have you think

'Many European voters want to preserve a relatively relaxed approach to life'
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The Independent Online

When political leaders bill a summit meeting as "make or break" you should not take them too seriously. So the fact that Tony Blair has described the European Union Barcelona meeting that starts this Friday as make or break for economic reform in Europe merely means he is feeling frustrated by the foot-dragging of his counterparts in Europe.

Yet there are two powerful practical reasons why not much can happen in Barcelona – apart perhaps from the action now being choreographed by the protest organisations. One reason is France; the other Germany. Both are about to have elections and cannot support any radical and potentially unpopular changes ahead of these.

It matters for the pro-euro lobby in the UK that Europe is seen to be reforming itself because the greater the delay, the more credible the argument that Britain should not tie itself too closely to a sclerotic, slow-growing economic region. Better by far to retain monetary independence, and use the flexibility that gives us to seek to align our economy to faster-growing markets, in particular North America and the emerging markets of East Asia.

But that is why it matters to Tony Blair and his allies in the EU reform camp such as Goran Persson, the Prime Minister of Sweden. Messrs Blair and Persson jointly signed a newspaper article yesterday calling for reform. It matters for politicians trying to sell the euro to a sceptical electorate. But it does not matter much in economic terms for the rest of Europe, at least in the short-term.

What? Economic reform doesn't matter? So the failure of the European summit two years ago in Lisbon – the one that sought to make the EU "the most competitive and dynamic knowledge-based economy in the world by 2010" – doesn't matter? The failure of the Stockholm summit last March – the one that the Commission admitted had demonstrated "a lack of political will" for reform – doesn't matter? Well, no, they don't matter much, at least in economic terms, for three crucial reasons.

One is time-scale. The lags in economics are quite long and the lags in structural policies longest of all. After a change in monetary or fiscal policy you would expect to see results in six months. But a change in pensions policy or the liberalisation of the European energy market takes years to have effect. At least a decade passed before the effects of the Thatcher revolution began to lift underlying UK economic performance. In the short-term, they may even have damaged it.

So the costs of waiting a few months or even years before pushing through unpopular (and in the short term, probably deflationary) reforms is not going to make a huge difference to Europe's performance vis-à-vis the US. Yes, there is a problem. Europe is gradually losing ground compared with America and it will continue to do so for several years, whatever the EU Lisbon targets suggested. But losing a year is neither here nor there.

The second reason is that economic reform is not really a summit matter. It is a matter for national governments. Economic growth varies enormously across Europe, from Ireland at one extreme to Germany at the other. Spain pushed through radical reforms to its labour market some five years ago and is now being rewarded by a sustained fall in unemployment.

Indeed, lack of economic reform in Europe is not the fault of the EU at all. To blame it – or to expect it to help much – is to pick the wrong target. At the margin, the EU may be able to help its members achieve a slightly better economic performance but the advance is marginal. According to Messrs Blair and Persson the single market has added just 1.5 per cent to the EU's GDP. Wow! That is equivalent to six months' growth in the US. When you are facing an average 30 per cent difference in GDP per head, the odd couple of percentage points is not much help in closing the gap.

The third reason for not worrying overly about this Barcelona summit is that the great chasm between Europe and the US (and to some extent the UK) is cultural. This was brought home to me the other evening when a twentysomething Austrian friend came to dinner. He is an economic journalist now working in Germany after a spell in London. What, I asked, was the biggest difference between the two countries?

"Young people here are much more driven," he replied.

And that is perhaps the most important cultural determinant of economic growth: whether the young want to work hard. The London economy is atypical but my friend's comment explains why young people flock to London from all over the world to work – making it the fastest-growing big city in Europe.

Americans recognise this, which is one of the reasons why the UK receives such a high proportion of US investment. From an economic point of view, this is good news for the UK: we import Europe's brightest young and export our semi-retired to their cottages in the Dordogne or their flats on the Costa del Whatsit. But there is little point in Tony Blair urging European politicians to bring in reforms that will make them more like us – or, perish the thought, like the Americans.

The great issue facing the summiteers at Barcelona is to square their quite reasonable concern that the economic gap between Europe and America is growing with the quite reasonable desire of many European voters to preserve a relatively relaxed approach to life. Resistance to reform is perfectly rational. We all want it both ways. A lot of people in Britain are very happy to enjoy the rise in their living standards that has taken place (retail sales up over 4 per cent in real terms) but pretty unhappy about the hours they have to put in to get that.

Much of Continental Europe would prefer to make a different balance: not much change in living standards (retail sales in Germany down over 4 per cent) but a quieter life. If that is the democratic choice people want to make, hectoring at the Barcelona summit at Europe's role in the world will do no good at all.

So the Barcelona summit will be neither make nor break. It will be just another summit. But it will give us some feeling for the appetite of Europe for economic reform and that will be interesting. Reform means harder work. If most European nations are not serious about trying to catch up with America that is fine. Let them be honest about it and concentrate on having a pleasant life.