This is why our ongoing  3  See for example Foster, Lucia, John Haltiwanger, and Chad Syverson (2008), “Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?” American Economic Review, 98(1): 394–425. 4  Albertazzi, U. and Marchetti, D. J. (2010), “Credit crunch, flight to quality and evergreening: an analysis of bank-firm relationships after Lehman”, Working paper, Banca d’Italia. 5  OECD Economic Surveys: Greece 2013 (November 2013). BIS central bankers’ speeches  3  comprehensive assessment of banks is so important. It will not only restore confidence in the sector, but also create the conditions for potential growth to recover more quickly. The assessment has a further benefit as well: it ensures the ECB’s low interest rates do not encourage banks and firms to delay restructuring. In this way, it allows us to maintain the monetary policy stance that is appropriate for the euro area, while mitigating any possible negative effects linked to misallocation of resources. The second priority is to encourage alternative funding sources in the euro area and to develop capital market financing, so that long run productivity growth is not so dependent on the health of banks. To some extent this is happening organically: corporates in large countries are already substituting bank lending for security and equity issuance. But this option is largely not available for SMEs, making them very sensitive to banking sector stress. This is why I have been vocal in supporting the revitalisation of the securitisation market in Europe, which has virtually dried up in recent years.

For euro area economies, the main area where that can be achieved is through addressing regulatory barriers – for example, planning laws that limit retail expansion or transport regulations that hinder cross-border projects. A recent report by a consultancy found that 45% of fixed investment in Europe was concentrated in sectors where governments have significant regulatory influence, implying that structural reforms in these areas could provide a significant boost to investment.7 And as many investment projects benefit from returns over decades, they could be made viable with regulatory changes even in a relatively weak economy. Second, given weak demographic trends in Europe, raising trend labour supply is only really possible through further reform measures. We know that these can work. The increase in labour participation during the crisis has been largely driven by previous reforms to increase  6  Standard & Poor’s, “Transition Study: Less Than 1.5% Of European Structured Finance Has Defaulted Since Mid-2007”, 11 June 2013. See also Moody’s Investors Service, “Structured Finance Rating Transitions: 1983–2013”, 7 June 2013, as well as Fitch Ratings, “The Credit Crisis Four Years On … Structured Finance Research Compendium”, June 2012, and “EMEA Structured Finance Losses”, August 2011. 7  Investing in Growth: Europe’s Next Challenge, McKinsey Global Institute, December 2012. 4  BIS central bankers’ speeches  female participation rates, as well as reforms related to early retirement and pensions that have raised the participation of older workers.