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BIS Review 44/2006  1  considerably improved our understanding of what has happened in the mid nineties with the end of what has been called the Solow paradox… On this side of the Atlantic one can understand why we did not observe the same jump in labour productivity: on the one hand the share of I.T production in the GDP is significantly lower and, on the other hand, the absence of sufficient flexibility in the economy in general does not permit to benefit from the rapid diffusion of innovation in general and of I.T in particular in the other sectors of the economy. To sum it up Europe would still be in the Solow paradox. But there is a second paradox in the case of Europe or perhaps more than a paradox: a conundrum. Why is it that not only we did not improve our productivity when the US did it – around the mid eighties – but that we observed on the contrary a very significant diminishing of our productivity? This phenomenon seems to me only half understood through traditional explanations: the impact of specific policies aiming at drawing back to work a significant number of previously unemployed unskilled workers – with a low level of productivity – that have been launched in several European economies; and a degree of under-investment hampering the stock of capital allocated to each employee. But it explains only around half of the diminishing of the labour productivity growth.