Global Europe

No summit could be more timely than today's European heads of government meeting at Hampton Court. A new government is coming to power in Germany. We are just six weeks before Europe can make or break the trade talks in Hong Kong. And there is a more pressing economic reason too -- Europe has not only been growing slower than America with higher unemployment, but there are signs that, on top of oil-price rises, a European failure to reform is now a contributor to rising inflation. The global truth is that no continent, however successful in the past, is guaranteed future prosperity.

So seriousness about economic reform means no longer just talking, but matching rhetoric with action in modernizing labor, capital and product markets. But reform must start with a bigger change -- a change in our mindset. Europe was built on a model of economic development that assumed for 40 years that national economic integration would be superseded by European economic integration, and then cultural and political integration, too. But this model has been overtaken by events. National flows of capital have been superseded not, as predicted, by European flows of capital, but by global flows. Instead of national companies replaced by European companies, we have global companies. Instead of national brands replaced by European brands, we now have global brands, too.

With world trade growing twice as fast as output and global capital flows up threefold in the last 20 years, so the two great drivers of globalization -- global flows of capital, and global sourcing of goods and services -- mean that those of us who are pro-European must persuade Europe to look outward, not inward; to become globally competitive; to adapt its social model to global realities; and to be far more open in its trading relationships with the rest of the world.

What makes change in Europe urgent is that the race with Asia is not a race to the bottom but a race to the top. China and India are producing four million graduates a year, Chinese R&D spending is now twice as high a share of its income as 10 years ago and India's service exports have increased eightfold since 1990. My visits to China, most recently earlier this month, have left me in no doubt that China is "up-skilling" every day, planning to beat us not just in low-skilled, low-tech, low-value-added, but in high value-added goods and services as well.

This is why we must now seek a new European consensus around a wholly different model for European economic growth. One that breaks with a past era where Europe saw itself as a trade bloc, to a new age where we think of a Global Europe.

Last month, the European Commission scrapped 68 regulatory proposals. Yesterday, it pledged to simplify almost 250 rules and regulations. It highlighted data demands and information requirements as the next area for action, but we all know we have to go much further. We should start by reducing regulatory requirements on firms: putting all regulations to a competitiveness test, replacing blanket requirements for information and inspection with risk-based regulation led by a business task force pushing for change.

A Global Europe that looks out to the world will embrace free trade and reject the "new protectionism." Agricultural protectionism not only keeps food prices high and hurts developing countries but still consumes half of the EU's budget. The starting point of a new openness is to go further in reforming the Common Agricultural Policy and respond ambitiously to the U.S. offer to abolish export subsidies and cut tariffs. And we should go further in breaking down the obstacles to free and open trans-Atlantic trade, particularly non-tariff, regulatory and other barriers. Simply breaking down the barriers to trade and investment between the EU and the U.S. could raise per capita income on both sides by up to 3%.

This week's call from the EU's employment commissioner for greater labor market flexibility is to be welcomed. But a social model that leaves 20 million of our citizens without a job is a model that needs radical surgery. The aim should not be to protect lifetime employment but to ensure lifetime employability. And the emphasis on modern social and labor market policies should be to equip Europeans with the skills they need to respond to the China and India challenge and move the Continent to full employment.

Wholesale reform of product and capital markets means completing the single market. My proposal is not just that we set timetables, sector by sector, for completing the market, but that we also widen pro-competition investigations beyond energy and financial services to expose those holding liberalization back and therefore keeping prices high. Britain recognizes the need for continued change. That is why in the pre-budget report, there will be further regulatory reform, additional proposals for greater labor market flexibility, and new capital and product market liberalization.

In this new global era, none of us can afford to stand still. The Hampton Court meeting is the chance for Europe to show leadership and kick-start the European economy back onto a path of reform, modernization and growth.