Towards a new policy framework for the enlarged Europe: investing for growth and modernization

European leaders aim to turn the enlarged Union into "the most competitive and dynamic knowledge-based economy in the world". But without major increases in infrastructure investments, dynamic growth - the missing ingredient of the European model - will not materialize. Given extraordinarily tight fiscal prospects, policy reform is imperative: (i) redeployment of resources from agricultural subsidies towards productive investment; (ii) selectivity and rigor in project screening; (iii) a larger role for the private sector and (iv) pricing policies designed to mobilize resources, manage demand and internalize environmental costs. Project funding should remain the instrument of choice for strategic infrastructure projects with regional integration features. Implementation performance must improve and, at country level, EU funding should be targeted to the poorest countries of the Union. Where policies and institutions are weak, EU funding should be conditional and channeled through well-designed programs that emphasize sector wide policy reforms, regional development and community-based initiatives.