"Red tape 'turning best firms away from Europe'
By David Rennie in Brussels

SOURCE telegraph.co.uk

"Europe's most successful companies are turning their backs on EU markets because of red tape, a high-level report said yesterday.

The companies that Europe needed to survive were instead investing more money than ever in the United States and Asia, concluded the report, presented to the European Commission in Brussels.

The lack of investment was so dire that it threatened Europe's "comfortable" way of life. "Europe has to act before it's too late," said the report's author, Esko Aho, the former prime minister of Finland.

The findings made unsettling reading for the EU leaders, ripping into their pledges to build a "knowledge-based Europe" that would overtake America in 10 years.

The reality was the opposite. Not only were US, Chinese and Japanese firms outspending Europe on research and development, the gap with Europe was growing.

Perhaps most damagingly, Europe's most important countries were pouring more and more of their technology investment overseas, as they despaired of the European Union becoming "innovation friendly".

Unless EU governments took bold action to increase spending on research, freed labour markets so skilled workers could move more easily, and stopped pouring taxpayers' money into dying industries, Europe's post-war way of life was doomed.

The report said: "Europe must break out of structures and expectations established in the post-Second World War era that leave it today living a moderately comfortable life on slowly declining capital.

"This society, averse to risk and reluctant to change, is in itself alarming but it is also unsustainable in the face of rising competition from other parts of the world. For many citizens without work, or in less-favoured regions, even the claim to comfort is untrue."

Mr Aho refused to follow the lead of French or German politicians, who have attacked major corporations for investing overseas and called for more "economic patriotism".

He said: "We cannot blame them. They are trying to take care of global competitiveness. Unfortunately, these companies can survive without Europe, but Europe cannot survive without these companies. That is why Europe has to act before it's too late."

His report listed a string of gloomy indicators. In 1992, six out of the 10 top-selling pharmaceuticals were produced by European companies. In 2002, this figure had fallen down to two. European firms invested billions more in the United States than US firms invested in Europe.

The report called for better access to venture capital funding to finance innovative companies and more movement between universities and business. The total pool of risk capital investment spent in Europe had shrunk by 90 per cent since the height of the information technology boom in 2000.

European governments were criticised for continuing to pour state aid into dying industries such as cars, steel and textiles. As part of the so-called Lisbon agenda of 2001 EU leaders committed themselves to spending three per cent of their gross domestic product on research and development.

Halfway through the 10-year Lisbon agenda programme, the EU still spent a meagre 1.9 per cent, far behind the US or Japan.

The commission recently predicted that China, for long seen a source of nothing more than basic manufacturing, is spending so much on higher education and research that it would itself overtake the EU on research spending by 2010.

In productivity, the report noted that Europe badly needed to extract more productivity from each worker."

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