British Prime Minister David Cameron [File photo]

When British Prime Minister David Cameron last week delivered his much-awaited speech on Europe, his many critical words on the state of the European Union (EU) triggered a shockwave across the continent and beyond.

And this not without reason since it was the hitherto bluntest expression of British frustration with the current conduct of European politics.

What Cameron called for amounts to the most fundamental change of the EU operating structures and procedures since its foundation. His claims culminated in the announcement of a popular referendum for 2017, where the British people would be able to judge the reforms undertaken by then by voting yes or no to continue British EU membership.

Cameron deplored the poor state of the European economy and the stagnation of growth, which he said failed to live up to the promises of economic and social welfare to be generated by EU integration.

Looking at the current state of the EU, one cannot deny Cameron is fundamentally right in his diagnosis. In a globalised world with free trade in goods and services, capital and labour mobility, EU economies simply need to become more dynamic in order to compete successfully on world markets.

This requires greater responsiveness of all economic stakeholders to changing market forces and circumstances: for firms to step up investment and be more innovative in their business strategies; for workers to raise their skills and qualifications and become more mobile and flexible in their wage demands; and for governments to ensure a business and investment-friendly institutional environment.

None of these concerns are new. Indeed, they are regularly taken up by the European Commission and the Council who address recommendations to that end to each member state, be it in the form of the Broad Economic Policy Guidelines or the assessments of member states' National Reform Programs.

Member states themselves are, of course, not unaware of the need for structural reform, but often lack the political will or power to put these reforms into place with the necessary determination due to resistance from pressure groups or the unpopularity of reforms and the sacrifices they imply from a short-term perspective.

At the same time, member states need to deal with the growing alienation of large parts of their population from European institutions. For a long time, they have bowed to the temptation to flatter their electorate with favors like social benefits and tax cuts that increased budget deficits and public debt, while blaming Brussels for its insistence on fiscal discipline as required by the European Stability and Growth Pact.

Yet, the major responsibility for the weak economic performance of the EU lies with member states and their failure to create the necessary conditions for strengthening the growth dynamics in their area of competence.

Much as the EU needed Cameron's "wake-up call," it is nevertheless regrettable he combined it with the potential threat of Britain leaving the Union. This prolongs the traditional British attitude of staying aside and criticising from "outside" rather than being fully involved and promoting change from "inside."

British policy unfortunately confines itself to putting forward most valuable and relevant arguments for the construction of Europe, but lacks the effort to follow up on them and fight for the implementation of its good ideas. It thus behaves like a soccer player who claims to know how to win a match, but contents himself with encouraging his fellow-players from the sideline.

Cameron's threat to leave the EU does bad service to British industry which will be uncertain for several years about its longer-term business prospects. Also potential foreign investors will rather turn away from Britain, as long as uncertainty about EU membership persists.

In any case, a withdrawal of Britain from the EU would be an important loss for Europe as a whole. The strength of the EU is the idea of unity in diversity, where member states bring in different traditions and historical experiences to find the best solution to common challenges.

In this respect, the British tradition of democracy, individual freedom, tolerance, pragmatism and market orientation is indispensable for Europe's civil liberty and economic prosperity.