THE European Union has abandoned its target of becoming the world’s most dynamic economy by the end of the decade, and instead adopted as its next “big project” a less ambitious programme aimed at cutting the Continent’s massive unemployment.

The European Commission’s new economic strategy, which promotes deregulation and free markets, draws heavily on the experience of Britain, the EU’s most successful large economy.

It marks a sharp change of tack for the Commission, the EU’s executive body, which previously put more priority on social protection, as demanded by countries such as France and Germany.

The Commission has also avoided adopting any more grandiose projects that build up the European project — such as single currency or enlargement — putting the emphasis instead on the down-to-earth practicalities of getting the right policies to cure the EU’s economic malaise. The Commission believes that the economy has to be put at the top of the agenda because it fears that high unemployment is fuelling public dis- illusionment with the EU, and could derail the plan to adopt the European constitution.

It launched its growth plan, which is supported by the Government and the Confederation of British Industry, on the day that German unemployment rose above five million, the highest since Hitler was in power. It took the EU-wide jobless total to 19 million.

In 2000, European leaders including Tony Blair adopted amid much fanfare the so- called Lisbon strategy, with the aim of overtaking the US to become the world’s most competitive knowledge-based economy by 2010.

Since then the European economy has slipped further behind the US, with the average growth rate down to 2 per cent, compared with 3.5 per cent for the US.

Yesterday’s report, called Growth and Jobs: Working Together for Europe’s Future, said that growth would slow further, to 1 per cent a year, undermining the welfare state.

Yesterday, José Manuel Barroso, the Commission President, said: “The way we went about it in 2000 was not very credible. There have been too many objectives and commitments. The overall goal was right but the implementation was poor. The approach we adopted today is far more appropriate.”

The report concedes that European policies were to blame. “This is not just a question of difficult economic conditions . . . ” it said. “It also results from a policy agenda which has become overloaded, failing co-ordination, and sometimes conflicting priorities.”

The report suggests reducing regulations on business and deepening the single European market by reducing barriers to trade in services. It also suggests more public spending on research and development, the promotion of high-tech centres and the creation of a “European Institute of Technology” to match the Massachusetts Institute of Technology in the US. However, it also proposes a harmonised company tax across Europe, which is opposed by many member states including Britain. Gordon Brown, the Chancellor, has always championed “tax competition” between member states.

Yesterday the Commission forecast that adopting its policies will boost GDP by 3 per cent and create more than six million jobs by 2010.

Socialist leaders in the European Parliament complained that it was “mimicking the American approach”.

However, Peter Mandelson, the European Trade Commissioner, who helped to devise the strategy, said that it was very much in line with new Labour thinking.

“Barroso is proposing a programme for Europe that we would describe as new Labour in Britain,” he said.

“Yes to markets, making them work better, to spur efficiency, innovation and higher productivity. Yes to social inclusion, removing obstacles to higher employment, helping workers to adjust to change.”

Mr Mandelson, who will advise Mr Blair on how to win the referendum on the EU constitution, said: “The emphasis on growth and jobs will help Europe to reconnect and rebuild faith in the European project. I think the best thing the Commission can do to help Britain vote on the constitutional treaty is to demonstrate that the Commission is effective, that Europe has a purpose and is going in the right direction and that the British people stand to benefit by being part of it.”

John Cridland, the deputy director-general of the Confederation of British Industry, which has been fiercely critical of EU policies, called on the Commission to live up to its new free-market rhetoric.

He said: “British business is encouraged by this new approach, but needs to see hard evidence of economic reform being delivered on the ground.”

Señor Barroso said: “I am quite certain that the race for growth and jobs will be Europe’s next great project.”

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