Introduction

In March 2000, the EU established the ambitious goal of becoming the most dynamic and competitive economy in the world by 2010. A variety of measurable targets were set accordingly, from increases in employment to higher spending on research and development. Despite initial optimism, the first half of the decade has been dispiriting and the EU is unlikely to achieve the objectives of the Lisbon Strategy. Over the last five years output has moved in fits and starts, without embarking on a sustained expansion, at a time when other OECD economies, notably the United States, were enjoying a strong recovery from the post-bubble recession. In the labor market, high unemployment has persisted in a number of EU countries. Trend labor productivity growth has declined toward the lowest pace ever recorded during the post-war period. Many observers have concluded that governments have failed to implement much-needed policies required to achieve the Lisbon targets and that, without radical changes, the strategy will fail to deliver on its promises (IMF, 2004; Kok, 2004). While this has been true for a long time, the lack of structural reform has become all the more problematic following the May 2004 enlargement, which brought into the EU ten countries with a total of 4.8 million job seekers. As more countries with large numbers of unemployed workers are knocking on the door, Europe must accelerate the pace of reform if it is to rise to the challenge.