in the us. overall a comparison of the economic performance of the euro area with that of other industrialised economies over a longer - term perspective shows that europe has room to develop its growth potential. since the early 1990s, real gdp has grown on average by 2. 1 % in the euro area, compared with 2. 8 % in the united states. since the start of emu, the annual growth rate for the euro area has averaged 2. 2 % per year compared with 2. 7 % in the us. one of the main reasons for the euro area ’ s modest performance is the relatively low trend growth in labour productivity. during the 1980s, hourly labour productivity in the euro area that in intra - euro area trade, rising from about 31 % of gdp in 1998 to almost 44 % of gdp in 2007. extra - euro area trade has, of course, also benefited from a period of strong external demand and increasing integration at global level. at the same time, this ratio increased from about 23. 2 % of gdp to 28. 9 % of gdp in the us. ( balance of payments definition, sources ecb and imf for the euro area, bureau of economic analysis for the us. ) data for the us refers to the year 2006. grew on average by 2. 3 %, while in the 1990s it declined to 1. 8 % and further decreased to 1. 2 % between 1999 and 2007. by contrast, hourly labour productivity growth in the us accelerated from 1. 2 % to 1. 6 % and 2. 1 % over the same periods. 5 what lies behind these labour productivity developments? specific policies aimed at increasing employment, particularly in the unskilled segment of the labour market, have certainly contributed to the slowdown in labour productivity growth. however, the developments in labour supply are only part of the story. to a large extent, the slowdown in labour productivity growth can be attributed to a significant slowdown in total factor productivity growth, or tfp growth, which is generally taken as a measure of technological progress and improvements in the organisation and overall efficiency of production. in the 1980s, tfp grew on average by 1. 6 %, before declining to 1. 1 % in the 1990s and to 0. 7 % between 1999 and 2007. 6 the countries that have managed to exploit the efficiency gains resulting, in particular, from new technology have enjoyed stronger labour productivity growth. for instance, in the last ten years, investment in information and communication technology

targets – namely a negative phillips curve coefficient and a viable transmission mechanism – a sustained period of disinflation, if this is possible at all, can only emerge if monetary policy facilitates it. however, present day central banks have little scope to show forbearance when price stability is at risk. tolerating inflation destabilisation is not an option for them. modern central banks have two strong antidotes at their disposal to avoid this. first, their robust monetary policy frameworks prescribe the delivery of price stability within a policy - relevant horizon. i stress this qualification as it is a key element. to be sure, the time horizon for central banks to normalise inflation cannot be preset, by statute, unconditionally. indeed, in a vast part of the world where central banks are assigned numerical objectives for price stability the stabilisation horizon is not defined in rigid calendar - time form, but is left rather flexible for central banks to determine according to the nature of shocks that cause inflation to deviate from target. at the same time, a central bank which allows itself too much discretion over the time horizon when inflation should return to its target would de facto be claiming authority over redefining its monetary policy objective. this would be manifestly inappropriate, probably illegitimate. central banks know that if they lack a verifiable commitment to control inflation over a horizon for which the public retains some visibility, this can result in inflation expectations becoming “ unanchored ”. to go back to a point i made earlier, it is in this spirit that a central bank may choose to react vigorously to supply - side shocks so that it can restore the public ’ s faith in the effectiveness of monetary policy. second, and as a corollary, present day central banks do not indulge in the self - absolving notion that monetary policy has reached its limits and that further actions would be fruitless. historically this sort of pessimism about the potency of monetary policy has led to policy paralysis. to make matters worse, this idea was often combined in central banking circles with the conviction that those authorities with control over income, structural and fiscal policies should be principally responsible for reviving the economy and countering deflation risks. in both the 1930s and 1970s as well as in the early 2000s in japan, these counterproductive beliefs led to policy inaction which ultimately resulted in enormous harm being inflicted on their economies. today ’ s central banks have learned the