Why Lisbon fails

This article looks at the political economy of structural reforms and growth in the European Union. As the EU's; economy approaches the world technology frontier, structural reforms that increase competition in intermediate goods sectors are necessary to boost innovation and productivity growththe main objective of the Lisbon Agenda. Such reforms, however, raise the opposition of incumbents and, therefore, are politically difficult to implement. When there are important policy spillover effects, national governments are more easily captured by vested interests, as they fail to internalize the benefits of reforms on the rest of the Union. This suggests that the weak political governance of the Lisbon Agenda, which is centred on the peer pressure of national governments, and the ensuing inability to complete the single market in non-manufacturing sectors, explains the Lisbon failure.