Indeed, this is why, despite the EU-IMF programmes proposing a comprehensive approach to reforms, product markets reforms have tended to lag labour market reforms. And the consequence is not only the mismatch between different measures that I just described. It is that reforms have often been perceived as unfair, which in turn undermines popular support for the reform process. So for those that still need to press ahead structural measures, including the large euro area economies, there are two key points to take from this. 12  4  For a more in-depth discussion on the link between wage developments and labour market institutions see the aforementioned speech by Mario Draghi at Jackson Hole. BIS central bankers’ speeches  First, talking vaguely about structural reforms, but not doing them, is the worst of all worlds. It creates uncertainty over the path of real interest rates, without in tandem raising expectations of future growth. Second, while in “normal” times it might be acceptable to reform one sector at a time, in crisis times it is not. Fairness must be a priority. And the best way to align vested interests is to reform them all at once. Why the composition of reforms matters The aim of structural reforms should however be more than internal devaluation. It should above all be to raise productivity growth. As I said earlier, the key to structural reforms having positive short-term effects is firms and households expecting higher permanent income, and altering their behaviour today. And to achieve this, productivity growth is essential.

Far more often, it has been the other way around […].”  II  Financial systems, risk allocation and economic growth  One major function of a financial system is to reallocate risk between different economic agents. Through such reallocation, borrowers can tailor their risk profiles and therefore, are provided with greater access to capital. Savers become better able to diversify and to manage their portfolios. Gains are unquestionably generated from the efficient capital allocation resulting from improved risk sharing. For instance, high-return (and innovative) projects, which tend to be riskier, will be better financed. For investors, efficient risk management may increase their ability to hold portfolio of high-risk projects while, at the same time, reducing their overall exposure through diversification. 3  R. Levine (2002): “Bank-based or market-based financial systems: which is better?” William Davidson Working Paper n°442. 4  V. Dolar and C. Meh (2002): “Financial structure and Economic Growth: a non-technical survey”, Working Paper 2002-24, Bank of Canada. 5  A. Greenspan (1999): “Do efficient financial markets mitigate financial crises?”, Remarks before the 1999 Financial market conference of the Federal Reserve Bank of Atlanta. 2  BIS Review 64/2006  A  Risk sharing and financial innovation  In the past thirty years, financial systems have undergone sweeping changes. Financial innovations, such as the development of the derivatives markets and the securitization of assets, have enabled intermediaries to better diversify and manage risk. Financial derivatives have revolutionised global capital markets.