ANALYSIS: Now that the euro has become a reality, the member-states of the economic and monetary union face a single overriding question: how to balance sustainable economic growth with the delivery of strong social services.

This question presents a fundamental choice between a society marked by affordable public services and opportunity for all, and one in which a reliance on laissez- faire may ultimately leave every man and woman to fend for themselves.

After the disillusionment with "big" government in the 1970s, and the frustration and anger over "small" government in the 1980s, citizens realised what they really needed was better government.

In the mid-1990s, progressive governments across the continent started laying the groundwork for redefining the role of the public sector. They did so by cutting seemingly out-of-control budget deficits, reducing the national debt, and by creating millions of jobs and cutting long-term unemployment along the way.

This priority - getting the economic fundamentals right - is well on its way but it is not complete. The economic slowdown, exacerbated by the terrorist attacks in the US, reminds us that public deficits in Germany and France have not yet been reduced sufficiently and unemployment in several member-states is still too high. The outlines of a second main project are nevertheless becoming clear. Europe's next task is to make market freedom and social policy programmes mutually supportive.

Across Europe, citizens rightly insist on better services for education, healthcare, public transportation, research and development, and public safety.

Investment and reform are the key to progress. Europe's middle classes understand that societies can prosper only with high-quality public services that leave nobody behind. They also realise that such services contribute to economic growth and development; fighting illiteracy; moving people from welfare to work; decriminalising marginal groups; and providing a safe environment for investment - these things are not cost-burdens but profit-generators.

But the stakes are high. The middle-classes will continue to accept current levels of taxation only if public services rival the quality and efficiency of those available in the private sector.

Doubts are creeping in. In recent years, consumer expectations have risen dramatically. Big differences have emerged between the standards provided by modern, smooth-running private companies and those of the outdated public sector, scrambling to keep up.

Closing this gap calls for political initiative: openness to unorthodox methods and experiments, less bureaucracy, increased management accountability, and more citizen and consumer rights. It also requires greater transparency and a more flexible labour market. Entrepreneurship in both a private and a public context can be effectively stimulated only through flexible labour contracts. Trade unions must show responsibility in accepting this.

As member-states embark on reform, they should learn from each other through best practices and benchmarking. Examples from the Netherlands help illustrate the sort of thing I mean.

First, a group of disabled citizens recently received a lump sum of money under a pilot scheme aimed at empowering them to make choices for themselves, rather than having anonymous bureaucrats do it on their behalf, often without proper consultation.

Secondly, the National Railway Company recently agreed to ground-breaking performance contracts; when the trains failed to meet the minimum level of punctuality, the top management stepped down. The same principle could easily be introduced in the health sector.

These initiatives are part of an emerging programme to put people first, with institutions at their service, not the other way around. The underlying philosophy is fundamentally different from the ill-conceived laissez-faire attitude that remains popular in "smaller government" ideologies.

But it does not constitute a return to the ill-fated welfare state. Better government is about providing services that benefit everyone, in a manner that creates an attractive climate for private investment. It is the political initiative that the start of a new era in Europe deserves.

The writer is leader of the Dutch Labour party