The Lisbon strategy is currently being overshadowed by the institutional crisis in the European Union. In June both the French and the Dutch gave a clear thumbs-down to the European constitution in their referendums. And agreement has still not been reached on the EU's financial perspective 2007 to 2013, with some EU leaders continuing to put national interests ahead of the common European interest.

"The European Union needs fresh impetus to move it forward. Here, the Lisbon strategy could provide the right answers to the problems besetting the Union," Michael Heise, chief economist at Allianz Group and Dresdner Bank, told journalists at a press conference in Brussels today.

In March of this year the economists at Allianz Group and Dresdner Bank presented their newly developed Lisbon Indicator that measures progress towards fulfillment of the Lisbon goals over time.

The indicator focuses on five macroeconomic variables of particular relavance to boosting growth and employment momentum. These include economic growth, employment rate, per capita income, labor productivity and investment ratio. Initially calculated for the EU15 as a whole, the indicator has now been expanded to include a regional breakdown.

"This helps to highlight specific national shortcomings or indeed success stories and to explain the behavior of the overall indicator," according to Heise. In a first step presented in Brussels today, the indicator has been calculated for the big EMU countries Germany, France, Italy and Spain.

According to the Lisbon aggregate indicator, Germany currently brings up the rear of the pack among the four EMU economies under review, with a reading of 0.5. But this does at least represent a bottoming out at a low level after years of decline. On the back of buoyant exports, the component indicator "economic growth" had a stabilizing effect.

By contrast, employment growth was disappointing. Even if progress has been made towards establishment of a low-wage sector, the number of jobs subject to social insurance contributions has fallen further. Since the year 2000, the employment rate has barely distanced itself from its original level of around 65 percent, thus moving little closer to the 2010 target of 70 percent.

All told, the question as to whether Germany can meet the Lisbon targets by 2010 has to be answered with no. Medium-term growth of 3 percent by 2010 is probably not within reach, although momentum will be stronger than in recent years, suggesting that the Lisbon Indicator will by no means stagnate in the years ahead. In overcoming the current weakness of growth, everything hinges on a revitalization of domestic demand.

With a current reading of a good 0.7 on the overall indicator France, although well below the target value of 1, is currently closer to the Lisbon parameters than the EU15 average. Buoyed by private consumption, economic growth has been hovering in the region of 2 percent (y-o-y) of late. But France's main source of concern on the growth front at present is the weakness of its exports. With respect to labor productivity, in the past few quarters France has assumed the lead among the EU15 countries, even if the latest reading of 0.5 is still unsatisfactory. The reason for this is the delayed response on the labor market.

Although French economic output has picked up noticeably, employment has hardly budged. This is also reflected in the current employment rate of 63 percent. Bit by bit France is departing from the target path rising to 70 percent. Behind this lie high youth unemployment, widespread early retirement and, contrary to the European trend, no rise in part-time work.

More encouragingly, the investment ratio has recently climbed back a tick above its 2000 level on the back of the rebound in business investment. All told, the overall trend in France up to 2010 is likely to head in the direction of the Lisbon targets.

The picture in Italy is far bleaker. Economic growth has been slowing for years and GDP growth rates are well below the EMU average. Italy has been drifting away from the 3 percent target almost continually since the end of 2001.

Economic as well as structural factors have left the manufacturing sector in a serious crisis which is now spilling over into the construction sector and into services. Growth in nominal per capita income has fallen since 2003 measured against the benchmark USA and labor productivity is heading south. Low investment and resultant relatively low technological advancement contrast with a marked rise in the employment rate. But at roughly 57 percent, the latter is still relatively low and remains well below the target figure of 70 percent.

A further problem is Italy's meager spending on R&D, at 1.1 percent of GDP substantially lower than its European neighbors. As a result, Italy is the clear laggard in the high-tech sector. All in all, Italian GDP can be expected to notch up annual growth rates of only 1 to 1.5 percent up to 2010, leaving the country trailing the field.

The Spanish economy is characterized by strong but narrow growth, dynamic employment gains, falling labor productivity and obstinate core inflation. Private consumption and construction investment are expanding strongly, making Spain the only large EMU country with growth of over 3 percent.

Since early 2000 the employment rate has risen from around 55 percent to 61.5 percent and is thus on the Lisbon track. Interestingly, not only has the number of people in work increased strongly but also the working age population - thanks to the integration of foreign workers. Since 2002 every second vacant post has been filled by a non-Spaniard. One of the upshots of the labor market reforms of the 1990s is that one in every three employment contracts is now for a limited period.

The shady side to the Spanish economy is the poor development in labor productivity. Partly, this reflects a lack of technological progress and scant human capital. Together with wage increases of 3 percent, this is leading to massive cost disadvantages and is undermining competitiveness.

Due to the exceptional construction trend, Spain at first glance is comfortably above the investment ratio target, but spending on R&D at around 1 percent of GDP is well below the EU average. Moving forward, it is doubtful whether Spain will maintain its Lisbon target lead among the Big Four. But even though average growth of some 2.5 percent up to 2010 is likely to be lower than at the beginning of the decade, Spain looks set to perform relatively well in terms of achieving the targets.

The regional breakdown of the Lisbon Indicator can contribute to more transparency when it comes to assessing the national action programs due in October.

Heise: "With the euro, structural deficits in individual EMU member economies emerge more clearly than before monetary union. This in itself should act as an incentive to implement reforms promising success." The national action programs should be seen as an opportunity to increase competition between the member states and give the European Union the fresh impetus so urgently needed.

As with all content published on this site, these statements are subject to our Forward Looking Statement disclaimer, provided on the right.