a lack of transparency and clarity in policymaking. in the remainder of my presentation i shall focus on monetary policymaking in a global market. the subject is naturally too vast to be fully covered in my introductory statement. thus, i shall focus my attention on two issues which i think are relevant to our discussion today. first, i shall mention some of the consequences of globalisation for policymakers. second, i shall explain why i think that the monetary policy strategy of the european central bank is well designed to face the challenges stemming from globalisation. some consequences of globalisation for policymakers with regard to the first issue, let me emphasise that i do not believe that globalisation has eliminated policymakers ’ influence over domestic political, social and economic developments, particularly in larger industrialised countries ( or areas ). on the contrary, the fact that people and capital can move more freely and quickly across borders makes the consequences of national policy decisions for the respective economies much more immediate and visible. obviously, this makes national policymaking and its presentation to the public more demanding. naturally, there is a disciplinary effect which comes from globalisation but this does not necessarily run counter to the national interest. the influence of domestic policymakers can be used for good or evil. globalisation improves the incentives for national politicians to implement good policies, such as structural reforms, which increase the flexibility of the economy. this is demanded by the treaty establishing the european community, which requires member states and the escb to “ act in accordance with the principles of an open - market economy with free competition ”. these policies will contribute to improved growth and employment perspectives. i believe in the idea that all nations gain from trade, including trade in financial assets. notwithstanding possible imperfections in the financial markets, international capital market integration can yield considerable benefits. however, it is important to stress that without flexible markets, countries will not be able to reap the full benefits of globalisation. moreover, it is well known that national authorities would face an impossible task if they had to reconcile in a sustained manner the objectives of what has been called the “ inconsistent quartet ” of ( 1 ) free trade, ( 2 ) complete international capital mobility, ( 3 ) fixed or managed exchange rates and ( 4 ) national autonomy in the conduct of monetary policy. the painful lesson to be learned from economic theory and historical experience is that these four elements cannot coexist, and that at least one will have to give way. this is of course one of the

differences in the extent to which capital and labour flow to innovative firms. for example, researchers at the oecd have found that a 10 % increase in the patent stock is associated with an increase in the typical firm ’ s capital stock of about 3 % in sweden and the united states ; 1. 5 % in the united kingdom and germany ; and a 0. 5 % in italy and spain. importantly, these cross - country differences tend be driven by younger firms, which are those that are most likely to supply radically innovative ideas. 19 the same product and labour market reforms that would spur innovation and adoption would also support better reallocation. employment protection legislation in particular is thought to significantly reduce the ability of innovative firms to attract resources. 20 this is not an argument to lessen workers ’ insurance against labour market risks, rather to shift the burden of that insurance away from firms and towards society more widely. this is where “ flexicurity ” type policies – active labour market policies, unemployment insurances – could play a greater role. reallocation is also linked to several other policies, which cannot be covered in detail now. they include aligning insolvency regimes with best practice so that resources can be released more quickly : for a firm to be resolved takes less than six months in ireland, for example, while in slovakia it takes about four years. 21 and they include channelling financing more effectively to innovative firms, where we also lag behind the us due to the fragmentation of venture capital within europe. 22 indeed, this is now part of the wider agenda of the european commission of building a capital market union. 23 why reforms are a necessary but not a sufficient condition for growth let me finally say a word on the macroeconomic environment needed for structural reform to succeed. as i explained earlier, reforms produce both expansionary and contractionary forces in the short - term. designing reforms in the right way and creating a productivity - enhancing environment can maximise the former, and let me add : the faster, the better. but while the full benefits of these efforts are still emerging, aggregate demand should counteract the potentially destabilising effect of lower prices and higher real interest rates. this can be done by fiscal policy, when it is available without questioning long - term debt sustainability. and it can be done by monetary policy, even when interest rates have reached for an explanation of this phenomenon in the us context see bernanke, b ( 2005 ), “ productivity ”,