"Europe must react," the EU's executive arm warns in the latest version of a document called "Europe 2020," to be published Wednesday, which provides the broad brush strokes of an economic strategy for the 27-nation European Union over the next decade.

The paper, seen by AFP, pulls few punches when describing the current situation for the European bloc, which has expanded in recent years and is split into the 16 countries that use the euro currency and the 11 that do not.

"Europe's structural weaknesses have been exposed," by the financial and economic crises, the text proclaims.

It goes on to list low growth rates and productivity, a lack of investment in research and innovation -- a key factor in a world of fast-changing technology.

An ageing population and relatively high unemployment rates add to the problems.

The report also highlights a tardiness to develop a "green" economy, pointing to "strong dependence of fossil fuels ad inefficient use of raw materials."

"Europe is left with a clear yet challenging choice. Either we continue at a slow and largely uncoordinated pace of reforms and we risk ending up with a permanent loss in wealth, a sluggish growth rate, high levels of unemployment and social distress, and a relative decline on the world scene... or we face up collectively to the immediate challenge of the recovery," the document says.

The unspoken phrase here is the "economic government" for Europe, championed by the first EU president Herman Van Rompuy, who took office in December.

However even before the great plan was unveiled German Chancellor Angela Merkel expressed the concern that the new goals may lessen the focus on the bloc's Stability Pact which enshrines fiscal discipline.

Merkel wrote to EU Commission chief Jose Manuel Barroso disapproving of the link between the pact and the 2020 strategy.

Under the proposed scheme EU nations "could ask for clemency on their deficits," on European diplomat said.

The commission is also keen to respond to criticism of its ambitious "Lisbon Strategy" launched in 2000 as a road-map for Europe's economy over the past decade.

The 2000-2010 strategy was aimed at building the most competitive and dynamic economy in the world but is now seen largely as a failure, a list of good intentions without any effective levers.

In a bid to avoid a repetition, Brussels makes clear that measures will have to be taken at national level and at European level, where it envisages a kind of economic government -- notably for the eurozone -- to better coordinate national policies, something already done in the area of budget deficits.

Not everyone is convinced, with some economists seeing merely a Lisbon Strategy II with no more guarantee of success than its predecessor.

"There's no substance, nothing concrete," complained Daniel Gros of the Centre for European Policy Studies (CEPS), who sees "no change from the past."

"You need tools to obtain the objectives," he said, for example through setting up a common research programme, which would ensure the funding was found.

One of the detailed goals proposed by the commission is to increase levels of investment in research and development from the mere 1.9 percent of Europe's GDP they currently take up to three percent.

At the same time it says the employment rate for the population aged 20-64 should increase from 69 percent to at least 75 percent.

To achieve its aims, the EU executive does have some new tools at its disposal, created by Europe's reforming Lisbon Treaty, which came into force in December.

However there are carrots but no sticks for laggards.

"We aren't setting up a Soviet (planned) system," one leading EU official said.

Van Rompuy will now lead discussions of the proposals, with a view to getting them adopted by the 27 member states by June.

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