The EU has taken a battering in the last few months. After being sidelined during UN climate talks in Copenhagen, EU policy makers entered the new year at the mercy of bond markets, which rounded on Greece’s debt problems, and have since turned their attention to Spain and Portugal. The earthquake in Haiti brought even more negative press and accusations of a lack of unity on aid pledges.

At a summit called by European Council President Herman Van Rompuy for 11 February, EU leaders will have to take stock of the situation while holding their first debate on the EU’s next ten-year economic plan, dubbed EU2020. A successor to the Lisbon strategy, the plan has two aims: one, to get Europe out of the crisis, and two, to pick up where Lisbon left off: to make the EU “the most dynamic and competitive knowledge-based economy in the world”.

They will have to succeed where Lisbon failed. Just eight member states met the plan’s 70% employment target by the 2010 deadline, and only two managed to dedicate more than 3% of GDP to research and development. Peer pressure and naming and shaming were the only tools at the Commission’s and Council’s disposal to pull up errant countries and encourage them to get on with the reforms, so it is little surprise, then, that in 2008 the employment rate was 66% - close to the target, but not quite there - and R&D spending was at a paltry 1.9% of GDP.

However, the crisis put paid to even meagre triumphs. With an unemployment rate of 10% and rising, and growth tumbling by over 4% across the bloc last year, some member states are struggling for survival. Greece, Portugal and Spain are not the only victims. The International Monetary Fund (with the Commission’s help) has had to intervene to shore up Romania, Latvia and Hungary. Ireland was a major worry until last December’s deficit-slashing budget calmed markets. Twenty countries have gone over the EU’s 3% of GDP budget deficit limit and government debt is ballooning.

GOVERNANCE

Van Rompuy is now trying to take control of the new strategy, giving leaders more of a say on how it is run. But member states were in charge before, to little effect. Ann Mettler of the economic think tank The Lisbon Council says, “The Council hasn’t figured out how to overcome resistance about what it says it wants”. Member states are reluctant to give the EU executive a more hands-on role. A cursory glance at national submissions to the Commission’s November consultation bears this out. The UK suggests annual summits to assess progress in meeting new targets - whatever they may be - but how these would improve on previous Lisbon stocktaking exercises is unclear. German Chancellor Angela Merkel said at the launch of the new Franco-German alliance, on 4 February, that she sees a role for the Commission as evaluator, but the Council remains the “economic government” behind the strategy.

SANCTIONS

Meanwhile, Spain’s Prime Minister José Luis Rodríguez Zapatero is calling for more “binding” targets to ensure future goals are met. The thorny issue is whether failure to meet binding targets should be punished by sanctions. Guy Verhofstadt, leader of the European Parliament’s Liberals and Democrats (ALDE), says that the EU budget could be used as a sweetener: fail on your 2020 innovation target, for example, and get less money from the research framework programme. EU countries currently receive €350 billion in structural funding a further €50 billion for research, so there is a fair amount to lose. But Mettler thinks this kind of governance is counterproductive. “When you do the right thing it needs to be recognised. Why don’t we name and fame? Countries that do the right thing should be celebrated.”

BUDGETS

A major problem will be realigning spending to meet new targets. The average budget deficit in the EU is just under 7% of GDP, and is to rise to 7.5% this year. Gross debt will hit 80%, according to Commission estimates, and extra crisis spending will have to be slashed by 2011, as agreed at the December Council. So should the EU budget be overhauled to help finance the targets? “There is an inconsistency between what we say we want and what we actually do,” Mettler says. The Commission’s goal - at least as outlined in the November consultation - is to boost skills, education, innovation and ‘green’ technologies. “But, according to the budget, we are an agricultural union,” Mettler points out, referring to the 40% of the budget dedicated to farm spending.

TIMELINE

What the February summit can deliver is still unclear. The talks, which are informal, will feed into the regular March Council, leading to a deal in June. Daniel Gros of the Centre for European Policy Studies (CEPS) says the result of the summits is likely to be less ambitious than the rhetoric indicates. “They will basically have a Lisbon II, with the big difference being that some processes will be different and they will have fewer targets.” For Parliament’s Socialists and Greens, the timeline is way too tight - both are keen to postpone a decision until the end of the year. Their demands are not out of proportion given that two key reports on Europe’s future - from ex-Commissioner Mario Monti’s internal market expert group and former Spanish Premier Felipe Gonzalez’s 2030 committee of wise men - are due in the coming months. Van Rompuy and Commission President José Manuel Barroso are both to present non-papers to the February meeting on how they see the ten-year plan unfolding, but so far there is a lot left to play for. Whatever happens over the next six months, Mettler says reforms are imperative. “There is no way Europe will endure another ten-year strategy of goals that are not met and a process that is very bureaucratic.”

EU2020: The positions

Parliament’s S&D group: eurobonds and ‘green’ tax to finance EU2020, postpone talks

ALDE: Commission should have a central role, EU budget to be used as carrot and stick

Greens-EFA: postpone adoption until December 2010

ECR: focus on existing Lisbon commitments rather than new areas

BusinessEurope: concentrate on removing internal market barriers and getting financing to companies

UEAPME: raise market shares for SMEs (internal market and international)

ETUC: develop a social programme (labour market policies)

BEUC: stronger focus on social inclusion and consumer protection