Old Europe is always good for surprises. The region’s actual economic performance is much better than expected, with growth rates above potential for this year and the next. Employment prospects are encouraging, with the creation of millions of new jobs and unemployment rates falling to below 7 percent. The public finances of European Union member states are also improving, bringing the fiscal deficit well below the critical deficit criterion of the Maastricht Treaty. Europe is thus gaining new strength in terms of growth. However, was this development homegrown because of successful implementation of the Lisbon Strategy, or foreign-made due to the competitiveness of Europe’s exports? Economic research institutes give no clear picture, but Heino Fassbender’s Europe as an Economic Powerhouse invites necessary reflection on Europe’s weaknesses, failures, and perspectives in coping with growth, employment, and sustainable development.

Sluggish economic adjustment remains a particular challenge for the Euro zone with its divergent development paths. But is this worry sufficient to deny the validity of the European social model and its role for the state? In contrast to other world regions, the European social model has persisted in the face of challenges from globalization. This model not only looks upon its costs, but also upon its productive contributions to growth and employment of social services, for example. This European social model characterizes countries by common features such as universal affordable access to education, training, social protection and health care, social dialogue, active labor market policies, predominantly public welfare systems, regulation of labor contracts, and anti-discrimination policies.

Through and through a European, Fassbender argues partly as Jeremy Rifkin does in The European Dream that Europe should not copy the US model. While Rifkin argues for less profit and more distributive justice, Fassbender pursues successful economic integration by using the customs union, single market, and single currency to underline the advantages of deregulation, smart regulation, and the concept of category definition. This is more like the US approach than the European approach. He wants less state control, despite the fact that most of the 10 most competitive economies listed by the 2006-7 Global Competitiveness Report are European. In the report, Finland, Sweden, and Denmark all performed better than the United States.

The report clearly demonstrates that there can be economic success stories with a strong interventionist state, high taxation for public spending, and comparable distributive justice. Those countries have macroeconomic stability, sound public institutions, independent judiciaries, market efficiency, and especially high investment in human resources that includes research and development, lifelong learning, and high output in tertiary education. Fassbender also favors investment in human resources so that Europe can become more competitive; it is clear that for him, the state must be at the service of the active market, and only market forces should be able to make the economy move. Europe will only become competitive with the excellence of its human resources, which is addressed by the European Strategy for Growth and Jobs.

For Fassbender, the single market demonstrates the power of unity to exploit the larger global market. Therefore he calls for the creation of more “champions,” or big corporate players, in Europe. But Europe is far from reaching that goal, having only 20 percent of the largest companies worldwide, contrasting with the US share of 75 percent. For Fassbender, this explains Europe’s lack of productivity as well as its failure to complete the single market. However, with the EU Services Directive and tens of extant directives for financial services in place, the European Union already has a more integrated market than the book leads the reader to believe.

There is another aspect not to be neglected. To aid the proper functioning of the single market, effective competition policies were established to forbid abusive dominant market positions, mergers, acquisitions, and cartels that hinder or detract from competition. In other words, the would-be “champions” were often not allowed to combat the challenges of globalization. On the other hand, state subsidies, which are forbidden in the treaty, are a fact. Very rightly, Fassbender cites cases in which an exceptional authorization was accorded by the European Commission but nonetheless failed to save the large companies that were crucial for the region.

Astonishingly, Fassbender discusses the single market, financial services, and capital markets without addressing the nearly decade-old introduction of the single currency. Both currency and financial services are involved in the single market’s transactions. The euro was certainly integral to economic recovery by eliminating transaction and hedging costs, and also by contributing to economic stability, low inflation, low interest rates, and the establishment of itself as an international currency. It helped to attract more trade and investment, promoted financial activities, and was a precondition for the Financial Services Action Plan. Yet a truly integrated services and financial services market has not yet become a reality. This is more due to different cultures in Europe than to the legislative and regulatory work, as the “funds and shares” culture does not have a tradition in continental Europe, where, traditionally, enterprises have had easy access to bank credit for their investment activities.

In contrast to monetary policy, which is centralized, and fiscal policies, which are national but subject to possible punitive European sanctions, economic governance is lacking in the European Union as a whole. Economic policies remain national throughout Europe, even if they are policies of common interest. The Lisbon Strategy justly commits countries to common macroeconomic, microeconomic, and employment policies. However, structural reforms in Europe are not enough. Investment is both needed and possible, and this is where the state comes in. Despite Fassbender’s convictions, the European project for the future does not believe that less government can be more. The right match of capacities, capabilities, and funds will make it possible for all Europeans to participate in success stories. Thus, the European cohesion and regional policies are now aligned with the Lisbon agenda in order to overcome economic disparities within regions. This very important approach reveals that Europe is not about the market economy but the social economy, and not about competition but rather fair competition, freedom, and solidarity. Fassbender favors equality, but only in view of equal opportunities that will encourage productive growth.