independently of the local conditions to the risk of a higher level of unemployment. it is consequently of particular importance for all countries to achieve a high degree of wage flexibility in order to improve the ability of their labour markets to adjust to such shocks. secondly, national policies should aim at improving long - term growth prospects by, on the one hand, affecting positively labour utilisation and, on the other, improving labour productivity growth. structural policies can increase labour utilisation by addressing labour supply incentives that are inherent in tax and benefit systems. high average and marginal tax rates and high unemployment benefits impact negatively on the incentives to engage in paid employment or on the choice of the number of hours to work. early retirement policies also have a significant negative effect on labour supply and, hence, on the participation and employment rates. growth in labour productivity should be supported by policies that aim at promoting innovation and technological change. for that purpose, policies should focus on allowing the efficient functioning of entrepreneurial activities, removing for instance entry restrictions and improving labour market adaptability. speaking in front of elected representatives, i know that the successful implementation of structural reforms requires constant explanations and well targeted communication in order to convince the citizens about their beneficial effects on growth and job creations ; i fully understand the difficulty of this task and can only encourage all responsible parties in these communication efforts. conclusion i am fully aware that this is indeed a very demanding list of tasks. but this is in our view the only way ahead. there is indeed enormous work to be done by all of us. and i would like to stress “ by all of us ”. we have, the eurosystem, the european commission, the national governments, and the european and national parliaments, a shared responsibility in ensuring a smooth functioning of emu, by improving the integration and flexibility of its markets. some differences in economic performances across countries or regions have existed and will continue to exist in the future, as it is the case in the us and in other any areas. 317 millions d ’ europeens ont decide de partager aujourd ’ hui un destin en commun. la monnaie unique n ’ est pas seulement une formidable reussite et le symbole puissant de l ’ unite de l ’ europe dans un monde en voie de transformation rapide. la monnaie unique nous reunit plus profondement, plus intimement que le debat public europeen ne le suggere par

is around 1 %, compared to 1½ % in the uk. and yet, the euro area ’ s fiscal deficit is half that in the uk. it structural deficit, according to the imf, is less than one third as large. it is difficult to avoid the conclusion that, if the euro zone were a country, fiscal policy would be substantially more supportive. however, it is tighter than in the uk, even though europe still lacks other effective risk sharing mechanisms and is relatively inflexible. a more constructive fiscal policy would help recycle surplus private savings and mitigate the tail risk of stagnation. it would also bridge the drag from structural reforms on nominal spending and would be consistent with the longer term direction of travel towards greater integration. it would be bold, and it would be favoured by fortune. bis central bankers ’ speeches 5. conclusion jim flaherty understood the importance of having a plan, and implementing it diligently and clearly. not just because, as policymakers, that is our job. but also because in the absence of such a plan, businesses and households would shy away from the risk - taking we need for a sustained global expansion. europe needs a comprehensive, coherent plan to anchor expectations, build confidence and escape its debt trap. that plan begins but does not end with the monetary policy boldness of the ecb. that plan includes difficult structural reforms, but cannot be wholly reliant on them. that plan requires greater private risk sharing via banking and capital markets unions. but that plan also needs to recognise that private risk sharing will never fully replace public risk sharing so that plan should include what every other successful currency union has at its heart : mechanisms to share fiscal sovereignty. as of this evening, progress on structural reforms in the euro area remains uneven. cross border risk sharing through the financial system has slid backwards. europe ’ s leaders do not currently foresee fiscal union as part of monetary union. 24 such timidity has costs. i think we all know what jim flaherty would have said about that. as president draghi recently noted, “ in other political unions, cohesion is maintained through a strong common identity, but often also through permanent fiscal transfers between richer and poorer regions that even out incomes ex post. in the euro area, such one - way transfers between countries are not foreseen … ” bis central bankers ’ speeches chart 1 : chart 2 : house prices ( a ) rose significantly during the boom years across euro