Last month, former Dutch prime minister Wim Kok presented to European leaders his midterm review of the Lisbon reform agenda.1 He concluded—surprise, surprise—that Europe will not, after all, become the most dynamic and competitive knowledge-based economy in the world by 2010.
As Mr. Kok told the leaders, their governments simply have failed to implement the necessary economic reforms to achieve the Lisbon goals. But he did not help to focus attention on the things that matter most. Instead, he presented no fewer than 22 "key recommendations," spanning from greening public procurement to the formation of new standing committees in the European Parliament. No social partner or interest group was left behind.
European leaders must focus their attention on raising productivity growth and employment, which are complementary, not conflicting, objectives. The way to get there is through increased competitive pressure on companies, greater labor market flexibility, and better work incentives. These are Europe's three big challenges at the moment.
The need for greater labor market flexibility and better working incentives, particularly by scaling back early retirement opportunities, is widely recognized, and some limited progress has been made. Our focus here is on one important policy prescription that would both increase...