the crisis and the evolution of business investment since. third, low potential growth can have a direct impact on the tools available to monetary policy to deliver its mandate. the reason is that low potential growth implies a lower equilibrium real interest rate, which in turn means that, faced with a negative output gap, nominal policy rates need to go lower still to steer output back to potential. this materially increases the likelihood that central bank policy runs into the constraint set by the effective lower bound for interest rates, which is not far below zero. it therefore also increases the likelihood that we have to resort recurrently to unconventional policies to meet our mandate. when in 2003 we clarified our objective to keep inflation below but close to 2 %, we assumed an equilibrium real interest rate of 2 % on average. 9 the probability of hitting the effective lower bound under this assumption was very low. today, imperfect indicators of the equilibrium real rate, such as real forward rates at long horizons, suggest that it may have fallen to much lower levels. in this context, higher potential growth would facilitate the stabilisation task of monetary policy by allowing the equilibrium real rate to rise. the untapped potential of the euro area for all these reasons, structural reforms that reverse the downward drift in potential growth are now vital for the euro area, which is why i believe, as the guardian of the currency, we have a legitimate interest in talking about them. but we should recognise that our weak longterm performance also provides an opportunity. since many economies are distant from the frontier of best practice in at least some policy areas, the gains from structural reforms are easier to achieve and the potential magnitude of such gains is greater. to give just one example, research by the oecd suggests that committed convergence towards best practice across labour and product markets, tax policy and pensions would arulampalam, w., p. gregg, and m. gregory ( 2001 ), “ unemployment scarring. ” the economic journal, vol. 111, november 2001. coenen, g. ( 2003 ), “ zero lower bound : is it a problem in the euro area? ” ecb working paper series no. 269, september 2003. bis central bankers ’ speeches raise gdp per capita by about 11 % after ten years for the average eu country. in the us, which starts from a more favourable position, the benefit would be under 5 %. 10 and it is not difficult to understand why the benefits of reform could be so

high in the euro area. high levels of structural unemployment, compounded by high numbers of underemployed and discouraged workers, imply a latent potential in our economies for a major positive shock to labour supply ( chart 5 ). we also have scope for a large catching - up in terms of productivity growth. tfp has increased by only 1. 5 % between 2000 and 2014 in the euro area, far below the 10. 9 % increase in the us over the same period ( chart 6 ). the type of policies that could release this upward shock to potential growth are not just those focused on price flexibility. they include, on the labour supply side, policies aimed at providing job search support for the long - term unemployed and requalification for the low skilled. and on the tfp side, policies that encourage the reallocation of resources – which could be powerful in the euro area given the wide and skewed distribution between the least and most productive firms 11 ( chart 7 ) – and policies that accelerate the diffusion of new technology, where the euro area on the whole lags some way behind the us ( chart 8 ). there are many other examples one could give. the important point, however, is that in the euro area today structural reforms are not about creating minor efficiencies or marginal gains. they are about unleashing an untapped potential for substantially higher output, employment and welfare. and in the current environment, this would play a crucial role in ensuring that the ongoing cyclical recovery becomes a stronger, structural recovery. structural reform in a fragile demand environment this discussion on the importance of structural reforms leads in principle to only one conclusion : the earlier they take place, the better. however, while most of us might agree with this statement in normal times, the fact that interest rates have reached the effective lower bound, coupled with the still fragile cyclical situation, makes the situation less straightforward. in particular, the question has been raised as to whether implementing structural reforms when the economy is still weak would be counterproductive, in the sense that it would make it harder to achieve our mandate by further reducing short - term demand. one argument that has been put forward in this context is that, if reforms lead to a credible increase in aggregate supply, they will exert downward pressure on inflation expectations. and if nominal interest rates cannot fall because monetary policy is at the lower bound, real interest rates will then rise, creating contractionary short - term effects