mario draghi : competitiveness – the key to balanced growth in monetary union remarks by mr mario draghi, president of the european central bank, at treasury talks “ a european strategy for growth and integration with solidarity ”, a conference organised by the directorate general of the treasury, ministry of economy and finance – ministry for foreign trade, paris, 30 november 2012. * * * ladies and gentlemen, i am delighted to be here in paris and to have the opportunity to discuss with you the challenges of restoring growth and job creation to the european economy. we are doing so against the background of a relative stabilisation of market conditions, and more generally of improved confidence about the stability of the euro area. fears that the euro could be reversible have been addressed. the recent announcement of the outright monetary transactions ( omts ) can be taken as an example of how to address tail risks, with possible severe consequences for price stability over the medium term and how to bring confidence back to the euro area financial markets. the confidence effect of the omt announcement has been significant, and rightly so. excessive government bond spreads have gone down, corporate bond and covered bond spreads have tightened, and a number of banks in stressed countries have been able to regain market access. these developments are very important for the prospective financing of the real economy. the relative stabilisation that has occurred, however, does not rely solely on the determination that we have shown at the ecb. it also relies, crucially, on the determination of governments to validate two assumptions : first is the collective commitment of all governments to reform the governance of the euro area. this means completing economic and monetary union along four key pillars : • a financial union with a single supervisor at its heart, to re - unify the banking system ; • a fiscal union with enforceable rules to restore fiscal capacity ; • an economic union that fosters sustained growth and employment ; and • a political union, where the exercise of shared sovereignty is rooted in political legitimacy. to borrow a turn of phrase from our late colleague tommaso padoa - schioppa : these are not short - term matters. but they are urgent matters. the second condition for lasting stabilisation is the individual commitment of each government to maintain or restore in their own country the conditions of competitiveness that are at the source of balanced growth and employment. this is the aspect i would like to focus on now. i welcome the consensus that now exists in france that

time if it continuously overshoots productivity growth, output and productivity growth are unlikely to be sustained over time if wages and domestic demand remain permanently depressed. this may lead to a protracted underutilisation of resources, with potential output eventually adjusting downwards to meet depressed demand. let me be clear : wage growth needs to moderate over the medium term for a sustained convergence of inflation to our target. but an excessive focus on short - term wage developments may not take into full consideration the recovery in wages that can – and needs to – take place for the euro area ’ s currently fragile recovery to gain a stronger footing. if the economy does not recover, this would mechanically put downward pressure on productivity growth or on employment. today, the process of disinflation is surrounded by less uncertainty as supply shocks reverse and risks to the inflation outlook have balanced out. we are increasingly confident that inflation will converge to 2 % by mid - 2025. waiting for further data before starting the normalisation of our policy rates, gives us additional insurance against upside risks to inflation. but we should remain proportionate going forward given an economy that has stagnated for 18 months, risks to the economic outlook that are skewed to the downside, and credit conditions that are in restrictive territory. if incoming data confirm the scenario foreseen in the march projections, we should stand ready to swiftly dial back our restrictive monetary policy stance. increased confidence in a timely return of inflation to our target should then allow forward - looking information to regain prominence in our reaction function. the rise and fall of inflation in the euro area the inflation surge headline inflation in the euro area increased to record levels following a string of unprecedented and intersecting demand and supply shocks, with the latter playing the primary role ( chart 1 ). chart 1 dynamic decomposition of euro area headline inflation using the bernanke - blanchard model ( year - on - year growth rate and percentage point contributions ) source : ecb calculation is based on arce, o., ciccarelli, m., kornprobst, a. and montes - galdon, c. ( 2024 ), “ what caused the euro area post - pandemic inflation? ”, occasional paper series, no 343, ecb. notes : the figure shows a decomposition of the sources of annual hicp inflation between the first quarter of 2020 and the fourth quarter of 2023, based on the solution of the full model and the implied impulse response functions. the