Education is key for achieving many of the goals that the EU has set itself in the Lisbon agenda, such as higher growth, and more innovation and entrepreneurial activity. Since well-educated people are more likely to have a job, education reform is also crucial for raising Europe’s employment rate.

Skill levels are improving, but the overall picture is mixed. The Finnish, Danish and French school systems are among the best in the world. But in Portugal, Greece and Italy many youngsters fare poorly on literacy and numeracy. Almost 30 per cent of young Europeans in their twenties now have a university degree, a share that is three times higher than among those over 60. However, while the US concentrates research funds and talent on a small handful of elite universities, scarce resources are spread too thinly among Europe’s 4,000 higher education institutes. The result is mediocrity and drab uniformity. Curricula are overloaded, professors are unmotivated and students drop out in droves. Among the world’s top-100 universities, 54 are in the US, 11 are in the UK while the rest of the EU together only has 18. Some 120,000 European researchers in technology and science have moved to America, attracted by more money and better career prospects. Economists also warn that unless Europe fixes its education and training system, white-collar jobs could increasingly move to Asia.

The EU itself has few competences in education. This is good because improvement requires more local autonomy, not centralisation. But the EU can set targets, encourage its members to learn from each other and accept each others’ qualifications.

Knowledge – its creation and diffusion – are key to a country’s competitiveness. To benefit in the long-term from the new division of labour created by globalisation, EU countries need to develop stronger comparative advantages in innovative goods and services. Creating and implementing innovation requires above all a highly trained workforce, with skills in science and technology. The ability to adapt to new technology requires well functioning secondary schools that are strong in maths and science tuition and a tertiary education system that facilitates the adoption and diffusion of innovation. A dearth of researchers is one of principal obstacles to higher R&D investment in the EU.

There are a number of steps that the EU should take to facilitate innovation. Regulatory barriers need to be dismantled and approval procedures speeded-up. This will foster the innovation of new products and services by providing companies with greater economies of scale and by reducing the cost of regulatory compliance. The share of the EU budget devoted to R&D needs to rise. Less money should be spent on supporting agriculture and more on improving the environment for innovation. The EU needs to reach agreement on an EU-wide patent on order to reduce the cost of filing EU-wide patents. Member-states must also be permitted to make more use of public procurement to foster the adoption and diffusion of innovative technologies. Finally, the EU needs to encourage the integration of service sectors across the EU. At present, service sectors are fragmented, with the result that there is often insufficient scale to make innovation worthwhile.