The Lisbon Strategy: a Framework for Social Reform Agenda in the EU LISBON STRATEGYAND KEY POLICIES Monetary policy is not neutral for growth potential Monetary policies actually are missing out on an important opportunity. Despite the fact that the current oil crisis is not showing the negative side-effects of the crisis in the 1970s, interest rates have been raised and will be raised further. The possibility of boosting activity and jobs without endangering inflation prospects is being neglected. It is worrying that the output gap is not a component of the European Central Bank's(ECB) concept of monetary policy because the man­date of the ECB clearly demands the support of economic policies in the Union (Treaty art. 105). At the same time it is up to the member states to pursue an annual improvement in their cyclically adjusted budget deficits and ensure higher adjustment efforts in an economically prosperous time. As growth in the euro area is picking up to its potential some member states are in danger of repeating the mistakes of the 1990s and not making sufficient use of“good” times to reduce deficits and consolidate further. Also, wage increases should be consistent with the trend in productivity over the medium term which will stimulate internal demand as an engine of growth. Lisbon and social policies For Europeans, the battle to achieve greater productivity is inseparable from the battle to ensure fairer distribution of the fruits of growth, greater social cohesion and effective protection of the natural environment. It is no coincidence that the Nordic countries provide the highest level of social protection and environ­mental protection. The high public spending this involves has not prevented their economies from continuing to improve their world ranking in terms of performance and innovation. Europe and also the EU social model(s) need reforms as policies are not only an expense factor but also a means to stimulate productivity and internal demand. Therefore the social agenda is important for the further implementation of the Lisbon Strategy. Europe must not give up its ambitious social policies, but should make full use of their potential contribution to economic performance and quality of life. Europe must enhance efficiency of social policies, eliminate poverty traps and other disincentives to work, must invest in developing(education, vocational training), sustaining(health) and activating human resources(through active labour market policies) and must ensure that the modalities of the financing of social policies contribute to employment and growth while maintaining the principle of mutual support and intergenerational solidarity. The Lisbon Strategy addressed the need for com­45