Update of the National Reform Programme to Achieve the Aims of the Lisbon Strategy: Is Spain Meeting European Standards? (ARI)

Update of the National Reform Programme to Achieve the Aims of the Lisbon Strategy: Is Spain Meeting European Standards? (ARI)

Theme: This analysis will evaluate the update of Spain’s National Reform Programme (NRP) to comply with the aims of the Lisbon Strategy that was approved by the Council of Ministers last 13 October and sent to Brussels for the second year running. It argues that Spain has given ample coverage to areas in which the Commission requested it to be more explicit in its evaluation of the original NRP from last year and has been very transparent when evaluating the progress made in relation to the different aims. Nevertheless, Spain, just like the majority of European countries, still has to work harder to increase visibility of the Lisbon Strategy among its citizens.

Summary: The analysis sets out first of all the basic characteristics of the National Reform Programme (NRP) sent by the Kingdom of Spain to the EU last year. Secondly, it describes the evaluation that Brussels made of this programme and highlights the fundamental points that Spain had to deal with for the update of the NRP in 2006. Thirdly, it evaluates the extent to which Spain has satisfied all these points. Finally, it highlights certain areas in which there is still work to be done to re-launch the Lisbon Strategy in Europe. The analysis concludes that Spain has just carried out, halfway through October 2006, an exercise in accountability which is unprecedented in the history of its political economy by offering a complete follow-up battery of the main objectives and principal indicators, even if they are not favourable to the country. In this respect, Spain has all the necessary points to again be recognised by the EU as a best-practice benchmark in terms of accountability. However, Spain has made little progress in terms of ‘ownership’ and visibility of the Lisbon Strategy. It should therefore work even harder to involve the ‘autonomous communities’ (regional governments), Parliament, the scientific community and the media in the entire process of updating the NRP each year.

Analysis: In the spring of 2005, the European Council, based on the Kok report (in November 2004) and the Summary Report from the Commission (January 2005), established the need to re-launch the Lisbon strategy by concentrating its aims on growth and unemployment. Similarly, the Council agreed that each member state would present its respective National Reform Programme (NRP), structured around 24 integrated guidelines for growth and unemployment for 2005-08. The possibility that each country would appoint a Mr/Mrs Lisbon to coordinate the drawing up of the programme and to increase the visibility of the strategy nationally was also approved. No sooner had the European Council ended when the Spanish Prime Minister wanted to underline Spain’s commitment to the re-launching of the Lisbon Strategy. Indeed, the Prime Minister was the first Head of Government in the entire EU to appoint a national Lisbon coordinator, a position that was filled by Miguel Sebastián, Director of the Prime Minister’s Economic Office. From that moment, up to 20 countries have appointed a coordinator, beginning the process of drawing up the NRPs that each country presented halfway through October 2005.

Spain’s NRP as Presented in 2005
The NRP presented halfway through October 2005 was structured into six chapters. First, it carried out a broad diagnosis of the Spanish economy from the new statistical base of national accounts that covered a significant increase in population and therefore an economic reality different from that of 2000 when the Lisbon Strategy was tackled for the first time. Secondly, the NRP highlighted as its principal objectives achieving full convergence in per capita income with the European Union (EU-25) in 2010 and achieving an employment rate of 66% (very close to the aim of 70% established in Lisbon).

Thirdly, to achieve these aims, the NRP carried out seven core actions. These were –and will continue until 2010– to be the following: action 1, strengthening of macroeconomic and budgetary stability; action 2, the Strategic Plan for Infrastructures and Transport (SPIT) and the AGUA Programme; action 3, the increase and improvement of human capital; action 4, the strategy of R+D+i (Ingenio 2010); action 5, more competition, better regulation, efficiency and competitivity; action 6, labour market and social dialogue; and action 7, the plan for corporate development.

For each one of these actions, the NRP presented a specific diagnosis for each area and established some specific aims for each action as well as the measures aimed at their compliance. Finally, the NRP devoted its fifth chapter to detailing the mechanism of accountability with a proposal for evaluation and follow-up measures to keep the NRP alive over time. The whole document finished in the sixth chapter which covered the correspondence between the 24 integrated guidelines approved at the European Council of June 2005 and each and every one of the measures contained in the NRP.

Internally, the government organised itself around the Permanent Lisbon Unit (PLU), comprised of the Ministries of Economy, Employment, Industry, Environment and the Economic Office of the Prime Minister that led the work. The PLU also organised a network of interlocutors for matters related to the NRP in the remaining ministries participating in the Government’s Delegate Committee for Economic Affairs that in the last instance is responsible for approving the NRP and following up its implementation and update.

As recommended by agreements of the European Council, member states should share the process of drawing up the NRP with as many economic and social interlocutors as possible, for which reason the government invited unions, business people, representatives of the autonomous communities, chambers of commerce and representatives from the Congress of Deputies and the Senate to participate in the NRP. Two meetings were held with all of them to invite them to make contributions to an outline of initial work and to put forward observations for the first draft.

Evaluation of the European Commission
The first progress report from the European Commission on the new partnership for Growth and Employment in the framework of the renewed Lisbon Strategy (January 2006) qualified the Spanish NRP as an ‘ambitious, coherent and comprehensive programme (…) that concentrates on the most immediate challenges for the Spanish economy (…) and establishes a global strategy to meet the economic and employment challenges established’.

The Commission positively evaluated the establishment of global quantitative aims for per capita income (although it evaluated the aim of per capita income as easily obtainable and the employment aim as the most appropriate). It also emphasised the establishment of explicit aims for each one of the seven actions, although it criticised that there was no order of priority established between them and that there was no clear calendar for all measures in the absence of budgetary undertakings associated with them.

In the macroeconomic area, the Commission considered that all Spanish NRP policies were adequate, especially valuing the aim of reducing public debt to 34% of GDP, an aim qualified as credible given Spain’s achievements in terms of budgetary consolidation. Nevertheless, the Commission asked for more clarity regarding the measures in the health and pensions areas while insisting that the ageing of European society requires governments to undertake reforms to guarantee the future sustainability of public pension systems.

In the macroeconomic area, the European Commission was more critical of the Spanish programme. Whilst it made a very positive evaluation of R+D and infrastructures policies, it qualified measures to increase competition and to encourage corporate activity (in particular to tackle the needs of SMEs) as insufficient.

Finally, in the area of employment and training, the European Commission considered the quantitative aims established by the NRP appropriate and supported the emphasis on the employment of women and young people. Regarding the reform of the labour market, the Commission considered that the agreements reached on collective negotiation and to boost self-employment were signs of progress in the right direction, although it awaits the results of the Social Dialogue to evaluate future measures aimed at reducing temporary employment. As for education and lifelong learning policies, the Commission welcomes the LOE (Organic Law on Education) and the new joint system of professional and occupational training. It considered the aim of the NRP to reduce the educational drop-out rate by half realistic but called into doubt the possibility of reaching the objectives relating to secondary education and lifelong learning established in axis 3 of the NRP.

In short, the Commission highlighted the following among the positive points of the Spanish NRP:

  • Continued effort to maintain budgetary stability throughout the economic cycle.
  • The implementation of a global plan to boost R+D+i (Ingenio 2010).
  • The establishment of a complete battery of objectives for roads and railways in the framework of the SPIT.

Furthermore, it requested the government to devote more attention to updating the NRP in 2006 for:

  • Matters related to competition, in particular in the retail sector and electrical sector, for example by means of improving cross-border interconnections with neighbouring countries.
  • Segmentation in the labour market and the need to increase the employment of women.

Update of the NRP in 2006
On 13 October 2006, the Council of Ministers approved the update of Spain’s NRP that includes a revision of the measures adopted in the NRP and is updated to comply with the requests from the European Commission.

According to this evaluation of the first year, the NRP includes 310 economic, social and environmental policy measures, of which 160 were already approved in its first year of being in force (52%), another 121 measures (39%) are in the process of legislative drafting and the remainder (9%) are under study. Progress on the two major objectives has been significant and it is likely that they will be achieved before the date foreseen in the first NRP (2010). In fact, full convergence of per capita income is very near (we have already reached 98.8%) and the unemployment rate now stands at 64.7% (very near the 66% established as an objective).

The achievements of the partial objectives of each action of the NRP were also significant. For example, in action 1, devoted to budgetary stability, the aim of reducing debt to 34% of GDP will be achieved in half the time foreseen. Thirteen percent and 29% of the two principal programmes of action 2, the STIP and the Agua programme respectively, have been implemented. Data from action 3 show progress in the schooling of 0-3-year-olds, educational drop-out rates and lifelong learning. In the balance of the first year for action 4 –devoted to R+D+i–, the programmes of Ingenio 2010 were updated (Cénit, Consolíder and Avanza) and achievements in scientific production (with an increase of 21%), technological production (with an increase of 40%), and the information society in households and companies (with an increase of 50%) were notable.

Regarding action 5, 85% of the Plan for Revitalising the Economy was implemented in its first year, with significant progress in the liberalisation of the telecommuncations, gas and electricity markets (with increases in consumption in the liberalised gas and electricity markets of 83% and 40%, respectively). The achievements of action 6 were obvious following the signing of numerous social dialogue agreements for reform of the labour market, the Dependence Law and the reform of pensions, among others. Finally, the Plan for Corporate Development was implemented in 2006 with the star measure of reducing corporate tax by five points as of 2007, although the first results in terms of creation of companies are a long way from reaching the stated objective.

Apart from this revision of the degree of compliance with the objectives of each action, the recently approved update of the NRP devotes specific sections to dealing with the principal weaknesses identified by the European Commission in its evaluation of the Spanish NRP: competition in the electrical and retail trade sectors, the segmentation of the labour market and the lack of information on the use of structural funds. Similarly, those actions related to new priorities established in last spring’s European Council in March 2006 (corporate development, employment, R+D+i and European energy policy) were also developed in greater depth.

In this respect, it is important to emphasise the effort this document makes in its fourth chapter to relate the use of European funds that Spain will receive over the period 2007-13 with NRP policies related to the Lisbon Strategy. This chapter offers exhaustive information, action by action, on the NRP measures that will be financed by different financial instruments from European funds. The following conclusion is drawn: ‘of the money managed by the AGE, approximately 85% will be aimed at complying with Lisbon objectives, thereby exceeding the 60% and 75% targets established in the European Council agreement of December 2005’ (NRP, 2006, p. 49), to which should be added everything that the autonomous communities are redirecting towards Lisbon-related expenditure.

The Problems of Visibility and Appropriation of the Lisbon Strategy in Spain
The truth is that the NRP 2005’s exercise in economic analysis and programming and the NRP 2006’s updating and accountability are unprecedented in the history of Spanish economic policy. To date no government has run the risk of explaining its objectives explicitly and putting forward its measures so clearly; when it has done so, it has been partially and with no objective follow-up.

However, the NRP has two global objectives and at least one more for each core action. These are not only explicit in the 2005 document but gain further relevance in the 2006 update, despite the fact that not all have seen positive progress. In fact, the NRP 2006 admits that Spain is growing and creating employment but is still not improving in terms of productivity, something that is at the centre of the economic model for change promised by the current government and that was reaffirmed as a central point of its National Reform Programme.

The government’s insistence in making this entire process an exercise in transparency was ratified throughout 2006 with the approval of a first governmental agreement comprising 121 specific undertakings on the improvement of economic information (of which 80% have been complied with) and a new agreement with another 22 measures. Furthermore, the creation of the Agency for Evaluation of Public Policies and Quality of Services has enabled the Permanent Lisbon Unit to receive a preliminary independent evaluation of the first year that the NRP was in force. This independent evaluation, which was emphasised as best practice by the Economic Policy Committee of the EU last year, was carried out by the General Directorate of the Ministry of Public Administrations, which will be at the core of this Agency when it becomes operational in January 2007.

Despite all these efforts to increase transparency and record in writing the drawing-up and following-up of the NRP, there has been virtually no media impact. There are various reasons that explain this, although the most important is that the government never presented the programme publicly to the media, preferring instead to present the different actions separately throughout 2005. In fact, the fiscal measures of action 1 were presented in January 2005, the SPIT of axis 2 in February, the Plan for Revitalisation of action 5 in March and the Ingenio 2010 programme with all the new initiatives for R+D+i in July. It only remains to present the social dialogue agreements of action 6 and the plan for corporate development of action 7. The former had its own presentation in April this year and the latter was void of content as it contained measures from other actions that had already been announced.

Since this is an ‘umbrella’ programme, that sets Spain’s entire economic and social policy, when the different actions were presented and the NRP had to be presented in October 2005, there was not much more to sell. This sequence of events perhaps resulted in keeping the different measures of the NRP in the media for nearly a year but without anyone noticing that they belonged to the NRP. Since then, it has been impossible to transmit to the public that the NRP was the common thread in all these initiatives because it established a rationale that connected the multiple ministerial programmes with a medium-term strategy in the direction of the Lisbon Strategy established in Europe and significantly driven forward from Spain.

It has been easier to transmit this message to social interlocutors who have actively participated in the process. In fact, one of the achievements of the NRP in 2006 was setting a calendar of meetings for drawing up the different phases of the document each year. The interest of the autonomous communities in this annual exercise has also been maintained, although in this respect little progress has been made as it has still not been possible to ensure that the autonomous communities carry out their Regional Reform Programmes as some of them had undertaken to do.

To make progress on the visibility and ‘ownership’ of the Lisbon strategy in Spain, a far greater involvement from Parliament is necessary than has been seen so far. The national coordinator for the Lisbon Strategy has gone to Parliament on two occasions to inform it about the NRP but the document was not discussed by the groups in Parliamentary Committee nor was it subject to debate in the plenary sessions carried out in the Congress of Deputies after European Councils. In fact, there has been very little involvement of representatives appointed by the Parliament and no relationship with the regional parliaments (representatives for this matter have not even been appointed).

Similarly, it is crucial to involve civil society. According to the ‘ownership’ index of the Lisbon Strategy in each country prepared specifically by the think-tank Bruegel after presentation of the NRP, Spain received the highest marks on the follow-up system and the degree of involvement of social interlocutors but received average marks on Parliamentary participation and the implication of civil society. To correct the situation, Spain should open up the debate in the media and involve the academic community. Some countries have fostered the presence of their national coordinators in the media and university forums. Others have created discussion areas on the Internet, opening up the pages of their NRP (in Spain’s case, www.pnr.es) for contributions from experts. Some countries have also included opinion makers in the process of drawing up the NRP (as if they were social or parliamentary interlocutors), while others have seen their financial dailies include a growing section on the exchange of op-eds related to European economic topics and the Lisbon Strategy.

Spain has various options in this context. One essential option is the public presentation of annual updates of the NRP by the national coordinator, something on which progress has been made in 2006. Another very interesting initiative for 2007 would be calling a meeting of all national Lisbon coordinators in Spain with the support of the Commission itself. Whether or not it is related to this initiative, it would also be quite important to hold some working days for European experts from the 25 EU countries on the best practices in the NRP to increase productivity. Finally, an absolutely fundamental matter is to incorporate the discussion of the NRP to the Conference of Regional Government Presidents, starting with its most important axis, R+D+i policies; this will apparently take place before the end of this year.

Conclusions: Spain is complying with Europe regarding its implication with the Lisbon Strategy as much as any of the other countries. It was not only the first country to appoint a Mr Lisbon, but also the first to present one of the most complete National Reform Programmes, which was recognised as the most rigorous in terms of follow-up, transparency and accountability.

The update of the 2006 NRP matches this initial ambition and specifically meets the questions established by the European Commission in its evaluation of the 2005 NRP, at the same time as offering a wide-ranging battery of follow-up indicators for all objectives and the necessary update of the programme’s measures.

Of course, this is a risky but very positive exercise that should enter into the political and media debate. In any case, it is an exercise that can be improved and in which the government leads the way. However, it should be accompanied by the opposition (to criticise it) and by social interlocutors, Parliament and civil society (to discuss it). Each have to do their part, including the media and the European Commission. The Commission cannot overlook that fact that it placed the re-launching of the Lisbon Strategy at the centre of its mandate. For this reason, although the free circulation of capital and the creation of the single energy market are matters of the maximum importance, the centrality of the Lisbon Agenda as a reference for all these initiatives should not be left aside. To achieve this, the Commission should give more credibility to its subsequent analysis of the new 2006 NRP and should get the Commissioners involved in analysing and criticising the NRP of each member state.

A large part of the weak credibility of the European project is at stake but this will significantly recover if we successfully undertake these measures.

Carlos Mulas Granados
Professor of the Department of Applied Economy II of the Universidad Complutense de Madrid (UCM)