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Last Updated: Tuesday, 22 March, 2005, 18:29 GMT
Q&A: EU's Lisbon Agenda
European Commission President Jose Manuel Barroso
Mr Barroso faces opposition over liberalisation of services

The 25 European Union leaders want to give new impetus to economic reforms - especially to make their countries more competitive.

What is the Lisbon Agenda?

When European leaders met at a summit in Lisbon in March 2000 they set the European Union the goal of becoming "the most dynamic and competitive knowledge-based economy in the world" by 2010.

It was the height of the dot.com boom, economic growth was good and prospects looked rosy. EU politicians were optimistic that Europe could enjoy the same kind of economic success as the US.

They set the target of achieving 3% average economic growth and the creation of 20 million jobs by 2010. The agenda set out the way to achieve this with a series of goals in areas such as employment, innovation, enterprise, liberalisation and the environment.

What were these goals?

The goals were wide-ranging and ambitious.

On employment, the goal was to raise the employment rate to 70% of the population by 2010 and to increase the numbers of women and older people in work.

To encourage innovation the goals included ensuring more homes had internet access and spending more on research and development.

On enterprise, countries were supposed to do more to support small businesses and reduce regulation and on liberalisation there was to be more competition in telecoms and liberalised gas and electricity markets.

For the environment, goals included reducing greenhouse gas emissions.

Why does it need relaunching?

Five years on Europe is hardly the beacon of economic growth and prosperity that leaders imagined. Instead of things getting better, in many European countries the economic outlook got worse. In France and Germany, for example, unemployment is around 10%.

Economic growth in the eurozone is forecast at only 1.6% for 2005, compared with 3.6% in the US.

Of course, some of this was related to the downturn in the world economy following the bursting of the dot.com bubble.

But it is also clear that recovery has been much slower in Europe than in America. With the problem of ageing populations and growing competition from Asia, EU leaders recognise that something must be done.

It is accepted that member states have not made the necessary progress on the Lisbon Agenda goals. There have been some advances on specific goals, for example the liberalisation of energy, telecoms and financial services sectors. But the headline objectives of boosting jobs by 20 million and ensuring annual growth of 3% by 2010 a year will not be met.

What will the leaders agree to?

EU leaders are planning to give new impetus to the Lisbon process.

European Commission President Jose Manuel Barroso said in February: "Lisbon has been blown off course by a combination of economic conditions, international uncertainty, slow progress in the member states and a gradual loss of political focus."

Leaders are likely to address these problems by reducing the number of goals and focusing on boosting jobs and growth. Instead of the current confusing myriad of progress indicators there will be one national action programme and implementation report for each country.

What is the Services Directive?

Under the Lisbon Agenda one of the areas earmarked for liberalisation is services.

The EU has a free market in goods, but not services. Yet services represent around 70% of the EU's GDP.

The European Commission presented its proposal to create an internal market in services early in 2004. The aim of the directive is to allow services to operate more easily across borders and will affect a vast range of businesses such as hotels and restaurants, car hire, construction and estate agencies.

It also covers advice provided by professionals such as architects and lawyers. It even mentions certain public services such as health care and environmental services.

Why is there a row about it?

The European Commission says the directive is essential to improve the EU's economy. It says 600,000 jobs could be created and output in the EU economy should rise by 33bn euros (23bn; $43.5bn). Yet it is not being welcomed with open arms by some countries and trades unions.

The row centres on the "country of origin principle". This means that a company would have to operate according to the rules and regulations of its home country, rather than the country it was working in. So, for example, a builders' firm based in Spain could offer its services in the UK and France, but would operate under Spanish rules.

This is upsetting some countries and the trades unions because they say it could undermine standards.

A company from a country with laxer labour regulations could set up business in a country which would normally require higher standards and price its competitors out of the market, critics say. They also fear there could be a race to the bottom, with firms relocating to countries with less regulation and lower standards.

Which countries dislike the directive?

There is particular sensitivity in France and Germany, whose governments want the directive rewritten. Concerns are fuelled by high unemployment in these countries and public worries over social protection and workers' rights.

In France, anger over the services directive has become mixed up with the debate over whether to approve the EU constitution in a referendum on 29 May, even though there is no direct link between the two. For the first time some opinion polls suggest that a majority may vote against the constitution.

Leaders will not be taking any firm decisions on the directive at the March summit. The European Parliament will look at it later in the year, but the European Commission has already said it is prepared to make some changes.

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