ABSTRACT
The European economy is at an abyss. On the one side lies the challenge of price competition in which the cheap labour available in the first and second tier newly industrialising countries poses a continual threat to the maintenance of real wages. On the other side the challenge is posed by the highly innovative East Asian and North American economies which have managed to shrink innovation cycles, to sustain product quality and differentiation, and simultaneously to reduce production costs. In the context of an increasingly open global trading system, inaction is clearly impossible. It is also unlikely that the member states will be willing to target a systematic policy of wage reduction as their response to the growing pressures of global competition. Furthermore, a growing trend towards inequality (as evidenced in North America) is also unlikely to be acceptable to member states.
