Now Europe must catch up with America

From a speech by Peter Mandelson, the Secretary of State for Northern Ireland, given at a business seminar in Canary Wharf, London

The innocent observer could be left with the impression from some in the media that Britain's economic status is only imperilled by greater alignment with our near-neighbours. But the European picture is more complex and more instructive.

The innocent observer could be left with the impression from some in the media that Britain's economic status is only imperilled by greater alignment with our near-neighbours. But the European picture is more complex and more instructive.

In Britain we lag behind our partners in productivity per hour worked, educational standards and the quality of infrastructure. With some humility, we have some areas in which to catch up. In other respects, though, Europe has looked at Britain and drawn some positive conclusions.

Euroland is entering a boom. The recovery is in part cyclical. But it is also in part the result of progressive economic reform. There is still a long way to go, but the direction is clear. In Germany public sector deficits are being reduced to more sustainable levels; corporate taxation is being cut to stimulate entrepreneurial activity and to encourage industrial restructuring.

In France widespread privatisation now means that 40 per cent of French industry is in the hands of non-French investors. The Jospin government is actively promoting venture capital and e-commerce;

Both the French and German governments are cutting top rates of income tax, and the scale of market liberalisation in telecoms, energy, road transport and aviation would have been unthinkable 10 or 15 years ago. And some of the traditional shibboleths of the welfare state are being called into question by centre-left European governments.

The Blairite Third Way is no flash in the pan - it is putting down roots across the Continent.

We must confront the hard economic reality: that Britain's economic success depends on the rest of Europe's economic success. Three-and-a-half million British jobs depend on Europe. The European Union is by far the UK's largest export market and, with enlargement, it will only get bigger and more important to us. And, regardless of whether we join, the success of the euro is vital to our prosperity here in Britain and across the eurozone as a whole.

But Europe does face two major economic problems: first, a persistently high rate of unemployment in the major continental economies. Although the core European economies enjoy a higher rate of productivity and better living standards than Britain, the last 25 years have seen the employment rate in the EU decline from 64 per cent to 61 per cent of the working population. In the United States of America it has risen from 62 per cent to 74 per cent.

Second, despite the economic reforms under way, Europe is falling further behind the USA in the race to build a knowledge-driven economy. America is well ahead in hi-tech investment in the hardware, software, services and telecoms sectors. Today, 75 per cent of the world's electronic commerce is conducted within the US, compared with 15 per cent in the EU.

So how do we catch up? The answer is simple: by 2010 Europe must be the most successful knowledge-based economic region in the world. In pursuit of that goal, last month's Lisbon economic summit was a watershed. It cemented the EU's commitment to economic reform and placed Britain at the forefront of that campaign. And it proved that a strong Commission pursuing a strong programme of reform is acting in Britain's economic interests, lowering barriers and strengthening competition in our home, European markets.

We must put job creation at the very top of our agenda. We must do more to promote enterprise and employability. We must advance structural reforms to tackle burdensome labour market regulations and high non-wage labour costs, particularly on lower-paid jobs. That means basing all economic reform on a set of common principles and setting clear objectives and sticking to them.

Whether we like it or not our future is in Europe. Only at the heart of Europe can we fulfil our potential.