The central importance of investing in knowledge and innovation for long-term growth is recognised in the Lisbon strategy. R&D expenditure in the EU is well below that in the United States and Japan and, despite the target for EU-wide R&D expenditure of 3% of GDP by 2010, limited progress has occurred in recent years. The Commission introduced a broad-based innovation strategy in 2006 and initial steps have been taken towards the formation of a European Research Area. More recently, the focus of policy has also turned towards encouraging and promoting the broader concept of “creativity”. A key challenge for the Commission is to improve the measurement of creative and innovative activities and the evidence base regarding the key policy influences on these activities. Further steps should be taken to strengthen the European Research Area and encourage cross-border research co-operation and the mobility of researchers. Progress in completing the internal market should also stimulate innovation.