EU warned that budget cuts will undermine growth

A leading economist has warned that the European Union is jeopardising its economy by failing to safeguard radical measures to bolster growth.

A leading economist has warned that the European Union is jeopardising its economy by failing to safeguard radical measures to bolster growth.

André Sapir, head of a team of economic advisers set up by the former EU president Romano Prodi, has criticised potential changes to the European budget that could see the amount spent on expanding the economy slashed.

Six leading contributory countries to the EU budget, including the UK, are seeking to cap central funding at around £70bn. If they succeed, it could put at risk a £50bn reform package allocated for research and development, as well as improving capital and labour markets and education.

But Mr Sapir, speaking to The Independent on Sunday, said: "We have to get out of our present complacency. We need to get more people in employment and obtain better productivity from those in work. Over the past 25 years Europe has slipped back one whole percentage point in potential growth. Such decline is gnawing at Europe's economic foundations."

Mr Sapir blamed the threat to the budget's reform package on the importance the EU places on funding agriculture and regional development (known as cohesion funding). Such funds are ring-fenced because of political pressures. The problem has been compounded by the prospect of the total EU budget for 2007-13 dropping from 1.14 per cent of EU GDP to 1 per cent.

Mr Sapir also warned that cutting back on growth-boosting proposals would send a negative message to industry about how committed politicians are to the Lisbon agenda. This aims to make the EU "the most competitive and dynamic knowledge-driven economy" by 2010.