They are billing it the "dot.com summit". EU leaders, who gathered in Lisbon last night for the informal two-day summit that starts today, are supposed, according to their ambitious Portuguese hosts, to be redefining the union's economic strategic objectives for the next 10 years and laying the basis of a new knowledge-based society.

Portugal's Socialist Prime Minister, Mr Antonio Guterres, very much the driving force, wants nothing less than "to make the European Union the world's most dynamic and competitive area, based on innovation and knowledge, able to boost economic growth levels, with more and better jobs and greater social cohesion". In other words, catch up with the US without losing Europe's social model.

To do so, he will tempt leaders with a familiar but spiced-up recipe for economic reform that combines a strong dash of Delors, more than a soupcon of Padraig Flynn, a dose of the Third Way, a social conscience sauce and chips with everything.

The only thing likely to cause leaders indigestion, it appears from the pre-summit tour of capitals, is the Austrian special, sachertort flambee. Chancellor Mr Wolfgang Schussel is expected to raise over dinner the issue of his country's diplomatic isolation and to urge fellow leaders to begin to explore an exit strategy. He is unlikely to find much sympathy.

Such is the discomfort of some leaders, most notably France's President, Mr Jacques Chirac, with the idea of even being seen in the same place as Mr Schussel, the Portuguese may have to cancel the traditional collective "family photo". In the words of Commissioner for Economic Affairs Mr Pedro Solbes, the summit challenge is to move from the successful macroeconomic stabilisation of economies associated with the introduction of the euro to real dynamism. The prospects of achieving real reform this time, he argues, are infinitely better precisely because of the platform created by that stabilisation and the growth now being seen throughout Europe.

The tools will be those of modern business: target-setting and benchmarking; using best practise to inspire; constant peer pressure from fellow member-states to crack the whip; and, above all, the lightest of regulatory touches.

To remedy the longstanding problem of the EU's inability to turn growth efficiently into jobs, the summit will address the old familiars of structural reform of labour markets, education, training and research co-ordination, most of which were the preoccupations of the Delors White Paper of 1993.

Targets will be set to ease the burdens on small business and e-merchants and make access to integrated venture capital markets possible. Indeed, leaders have developed a new enthusiasm for setting the sort of concrete targets for progress on key liberalisation programmes in transport, energy, financial services and, most particularly, telecommunications which the former Irish commissioner, Mr Flynn, sought to use in social policy reform.

There may be arguments about how high to set the bar. The French are not enthusiastic about accelerating liberalisation and others reject the idea of setting overall growth targets, arguing that governments can not directly influence such figures. Thus "3 per cent growth" is likely to appear in the summit conclusions as a likely outcome rather than a specific commitment.

There are some differences of degree too among member-states about how to formalise the follow-up structures. Some want these to be dealt with at special economic spring summits.

Agreement is likely to be easiest in the discussions on Internet access and the facilitation of e-commerce. Among others, targets will be set to put every school online, for the retraining of teachers, workers and the unemployed, and for reducing the costs of Internet access. Perhaps most ambitious, if leaders agree to it, will be the Commission target to reduce overall poverty levels from 18 to 10 per cent by 2010.

Over dinner tonight, the leaders are expected to discuss a strategy paper on the western Balkans and to get a short report on the preliminary work of the treaty-changing Inter-Governmental Conference. The Taoiseach, Mr Ahern, is expected to raise the issue of armed attacks on UN forces in East Timor. Leaders may also agree to give the go-ahead to new EU civil crisis management structures in parallel to the rapidly developing security structures. They will meet today for lunch and then sign a major trade agreement with Mexico's President Mr Ernesto Zedillo, which will see substantial mutual tariff reductions over the next few years.