Report reveals growing divergence in EU

Europe's captains of industry yesterday warned of serious economic divergence in the EU just months before the launch of European economic and monetary union.

In a damning report, the European employers federation UNICE blamed obstacles to hiring and firing, bloated public services, and the inflexibility of labour markets for dragging down Europe's global competitiveness. Britain, Ireland and The Netherlands are at the competitive edge because they - unlike Germany, France and most other EU economies - have restructured to meet the challenges of the global marketplace, the report claimed.

The UNICE report highlighted the sharp divergence across Europe which could undermine the single currency.

Industry in Germany and Belgium for example is burdened by the highest labour costs in the world - more than $30 (pounds 18) an hour - compared to around $15 an hour in Britain or Ireland. Social security payments, payroll taxes, sick leave and other benefits account for 93 per cent of wage costs in manufacturing in France but only 40 per cent in Britain and Ireland.

Only Britain, Ireland, Spain and Portugal have an average ratio of taxes and social security contributions below the OECD average of 38 per cent of GDP. Total taxes and social security charges for an average worker amount to 57 per cent of total labour costs in the EU compared to 37 per cent in the US and 33 per cent in Japan. An average industrial worker in Belgium, where the marginal tax wedge is highest, has to work until the end of August each year just to pay off taxes and social charges whereas a Japanese worker reaches a "tax free day" by April.

UNICE also dismisses the "fallacy" that reduced working hours can trim unemployment by highlighting the German case: unemployment has reached its highest levels since before the war but German workers have the lowest annual working hours in Europe. British workers have the longest hours in the EU.