The European Union (EU)'s flagship strategy for growth and jobs is working now, three years after it was relaunched in 2005, the European Commission said on Tuesday.

    The Lisbon strategy, named after the Portuguese capital where it was initially adopted by EU member states in 2000, is contributing to the recent much improved performance of the EU economy, the commission said in its strategic report on economic reform across Europe.

    Previously aimed at making the EU "the most dynamic and competitive knowledge-based economy in the world" by 2010, the bold strategy was later watered down and was relaunched in 2005, which is organized around three-year cycle, with clear focus on growth and jobs.

    Thanks to the structural reform carried out under the strategy, the EU registered a remarkable economic growth of 3.0 percent last year, the fastest pace since the beginning of this decade. Economic growth in the 27-nation bloc is expected to remain at 2.9 percent in 2007.

    The commission said structural reforms have helped increase the potential estimated growth rate of gross domestic product (GDP) in the euro zone by 0.2 percentage points since 2005 to some 2.25 percent in 2007.

    As to the other clear-defined goal of the Lisbon strategy, almost 6.5 million new jobs have been created in the last two years. Another five million jobs are expected to be created up to 2009. Unemployment is expected to fall to under seven percent, the lowest since the mid 1980s.

    For the first time in a decade, strong increases in employment have gone hand in hand with robust productivity growth, the report said.

    EU budget deficits have been significantly reduced, from 2.5 percent of GDP in 2005 to a forecast 1.1 percent in 2007. EU public debt has declined from 62.7 percent in 2005 to just below 60 percent in 2007.

    It is now possible in all but a few member states to start up a business within one week by means of a "one-stop shop" and there have been important steps in implementing the EU's better regulation agenda.

    According to the commission's report, all member states have now set a national R&D investment target. If all of these targets are met, the EU will reach a R&D level of 2.6 percent of GDP in 2010, up from 1.9 percent in 2005.

    The commission said it would be a significant improvement even if the key EU target of 3 percent were only reached later.

    "The Lisbon strategy is working. It is creating growth and jobs. It is helping position Europe and European citizens to succeed in the age of globalization. It has given Europe a common, pragmatic economic agenda, fully respecting national differences," said the European Commission President Jose Manuel Barroso.