environment and to trigger productive investment, which continues to show signs of weakness in the euro area as a whole. in the more medium term, the combination of negative demographics, low productivity growth and high levels of public and private debt constrains the euro area ’ s ability to regain precrisis growth rates, creating a breeding ground for disillusionment with and distrust of the european project. it is, therefore, essential that governments revive the reform momentum, to optimise the working of production factors and product markets, improve the business environment and complete the euro area governance framework. important labour market reforms have been undertaken in recent years, especially in the countries hardest hit by the crisis. empirical evidence shows the positive impact that those reforms have had on growth and employment. but preventing high unemployment rates from becoming entrenched and long - term unemployment from growing remain a priority. where least progress is perceived is perhaps in reform of the product and service markets. recent experience shows that it is important to implement the reform agenda in the right order, since early reforms, tending to enhance competition, may be vital to ensure that labour market reforms have the desired positive effects. bis central bankers ’ speeches in various euro area countries, product market reforms should aim to improve the business environment, remove administrative barriers and increase competition. revamped insolvency proceedings would help to improve management of the loan write - offs that currently place such a heavy burden on banks ’ balance sheets. insolvency proceedings, if well designed, can be an efficient way to reallocate resources to sectors and firms that offer higher growth potential. in the case of services, european commission studies suggest that full implementation of the services directive would deliver significant productivity gains and growth potential. efficiency gains may also be achieved through the creation of a single energy market. regarding the free movement of persons, we should be aware of the risk of the spread of an uncoordinated response that may ultimately fragment the schengen area. the introduction of reforms and deepening of the single market are clearly crucial to achieve the structural convergence needed to improve the functioning of the euro area and make further progress towards a more robust monetary union. our aim is to achieve sustainable activity and a recovery in employment, while maintaining the essential bases of the welfare state which is naturally one of the pillars of the construction of europe. clearly the result of the referendum held on 23 june in the united kingdom is a major setback along that road, with consequences for the

medium and long term that are still difficult to gauge but which, in any event, obliges all of us, economic agents, citizens and governments to reflect on the future of the european union and its governance. in light of the uncertainties unfolding in this new scenario, it is now more important than ever to achieve sufficient and sustainable economic growth that will boost income and employment. the message reiterated by the ecb over the last two years at least is that monetary policy cannot be the only economic policy instrument. monetary policy is no substitute for reforms designed to improve competition and the functioning of markets, nor can it directly help to improve the quality of fiscal policy or improve governance at the european institutions. together with the continued need for reforms implemented in the right order, so as to take advantage of the synergies that may be obtained, for instance, from a combination of structural reforms and monetary policy, political and institutional stability are clearly essential. in that respect, it must be admitted that the latest developments in the european union have not been particularly favourable. however, it is also true that in recent years the european union, its institutions, and most certainly the ecb, have tackled serious difficulties – the sovereign debt crisis, the euro crisis and now the uk crisis are all fine examples – and this instils us with confidence that we will also overcome this situation and set the eu economy back on track for sustainable growth. thank you very much. bis central bankers ’ speeches