##down on employment growth is likewise ambiguous in the medium term. slower output growth depresses employment growth as firms face weaker demand, but slower productivity growth implies that firms need more workers to produce a given level of output. as in the case of inflation, the strength of the spending response is crucial. the more sharply spending and output decline following a productivity slowdown, the more adverse the effects on employment will be. both the late 1990s and the more recent period illustrate the central role of the spending response in determining the macroeconomic effects of a change in productivity growth, although ( as i have kohn ( 2003 ) explores some of the issues of this section in greater detail. braun ( 1984 ) and ball and moffitt ( 2001 ) discuss the effect on inflation of a change in the rate of productivity growth. discussed today ) in both of these episodes the productivity surprise was to the upside rather than the downside. the rise in productivity growth after 1995 was accompanied by surges in both consumption and investment spending, supported by a booming stock market. employment rose and unemployment fell, as the strength of aggregate demand induced employers to hire, the increases in productivity notwithstanding. inflation remained fairly stable during this period, as upward pressures from increased aggregate demand were balanced by downward pressures on unit labor costs ( for any given level of wages ) and by the increase in aggregate supply created by higher productivity. in contrast to the experience of the late 1990s, during the early part of the new millennium the response of spending to rising productivity growth was comparatively weak. investment spending was particularly slow to respond to the further increase in productivity growth, for reasons that are still debated. possible explanations for the weak investment response include an unusually high degree of corporate caution, cost - cutting pressures, and the after - effects of the corporate governance scandals of 2002. an explanation suggested by my discussion today is that, for most of this period, companies were enjoying the fruits - in terms of higher productivity - of earlier investments in both tangible and intangible capital. the extra productive capacity created by those investments, together with a recovery whose durability in the early stages was not assured, may have implied little need for further investment, at least until relatively recently. whatever the cause, the weaker response of spending in the more - recent period, coupled with impressive gains in productivity, helped to generate both a pattern of slow job growth ( the “ jobless recovery ” ) and the worrisome decline in inflation in 2003. what are the implications of

panelists. ladies and gentlemen, the same as the topics discussed in the previous reunions, “ convergence towards euro enlargement ” is highly important and is worth debating at length. let me start from the fact that euro adoption by the new member states is a matter of when, not if, because they do not have an opt - out clause. the commitment to join the euro area is undeniable, yet how the complex process of ensuring the prerequisite economic convergence is conducted remains largely at the discretion of the authorities in candidate countries. in this context, the approach has varied both across time and across states. shortly after the new member states ’ accession to the european union, the assumed target dates for euro adoption were very ambitious, although the fulfilment of some of the maastricht 1 / 4 bis central bankers'speeches criteria was still a long way ahead at the time. the more prudent stance manifest afterwards does not necessarily point to the inability or difficulty in complying with the nominal convergence criteria. rather, it occurred after the beginning of the global crisis, when some of the benefits of euro adoption faded away, while the related costs became increasingly visible. we are therefore witnessing a substantially revised and more comprehensive approach to the euro accession process overall. as regards the actual differences in countries ’ strategies, for some it might be puzzling that bulgaria is thinking of joining the euro area sooner than romania. it is true that these neighbouring countries have a lot in common, but there are also other things that set them apart ( not only the danube! ). bulgaria has a currency board in place and it is natural for it to contemplate euro adoption as a sound exit from this monetary policy arrangement ( the adoption of which, two decades ago, meant half a step towards the euro area ). by contrast, romania pursues both a floating exchange rate and a direct inflation targeting strategy, the same as hungary, poland and the czech republic and, therefore, the approach is different, the changeover to the euro being more complex in this context. this is by no means to say that romania is sceptical about euro adoption, but merely that it needs a comprehensive view, meant to ensure an adequate timing of this moment and a successful entry into the euro area. while we are on the subject, it cannot be overlooked either that the new member states having adopted the euro – latvia, lithuania, estonia, slovakia, slovenia – are relatively small countries, with a different