The European Union must face up to the challenge of globalisation, according to a Treasury report.

An analysis published by chancellor Gordon Brown on Tuesday said the continent must adapt to the long term trends now emerging in the global economy.

Tackling the issues will be a priority for the UK presidency of the EU later this year.

The study in essence urges the rest of the EU to adopt British economic policies; though similar calls have gone down badly in the past.

The authors pointed to a "changing balance of global economic activity", with an increasing proportion of global output coming from Asia.

Within a decade China's economy is likely to be the second largest in the world and the EU will account for a steadily diminishing share of world output, it added.

There will also be an increasing integration of global economic activity, and further relocation of economic activities.

Innovation and research will be vital to future prosperity, added the report, while rapid technological and market changes will require the reform of Europe's labour markets.

There will also be a need to tackle environmental problems and address climate change.

To address these issues, the study calls for the EU to adopt a range of policies focused on "delivering growth, jobs and rising living standards for all".

It urges a "stable macroeconomic environment", support for research and development and a "dynamic and competitive" single market.

The EU is also encouraged to adopt a "more outward-looking" approach to multilateral trade liberalisation talks.

While urging reform, the study accepted the need to respect Europe's "historical commitment to matching enterprise with fairness".

But in typical New Labour language this included active and responsive welfare states which equip people with the necessary skills to respond flexibly to change.