after the 2016 upset vote of the british people to leave the european union to address the political and economic challenges of brexit. from an economic point of view, such uncertainty tends to support the euro against the dollar and the sterling pound. from a political point of view, the centre electorate seems to have been unsettled by what is happening in the uk and us and has been frightened off the extremist - populist parties. there are of course seminal elections ahead in the european continent, in germany, europe ’ s biggest economy and the eurozone ’ s dominant power, in september. the likelihood that no major political upsets will come from germany in september is indeed among a number of forces combining to generate fresh optimism for the european project, which has seen quite a few lows in the past few years. of course, the german electoral result will influence everything from european relations with the us, china, russia and turkey and, certainly, the future course of the european union and, in particular, the success of french president emmanuel macron ’ s initiative to reboot the eurozone through his proposals for a common budget and finance minister for the region. macron is openly pro - european and keen to bolster support for the eu – reinforcing the idea that the bloc can help its citizens secure a better life – as a key part of his strategy to counter populism and euroscepticism. support for the eu, battered by long crises over debt and migration, has begun 7 / 17 bis central bankers'speeches to recover. the eu ’ s own latest eurobarometer report on public opinion, published this month, found that trust in the eu has risen to 42 %, from 36 % a year ago and 32 % in late 2015 ( see figure 7 ). 8 / 17 bis central bankers'speeches outside the uk, dissatisfaction with the eu doesn ’ t translate into support for leaving. this is not to say that european citizens suddenly disregard the eu ’ s dysfunctional nature and efficiency problems. a survey of 10 eu countries published in june by the pew research center found that europeans remain critical of the bloc. a median of 46 % disapproved of the eu ’ s handling of its long economic crisis, while 66 % disapproved of its management of the refugee crisis. any talk of frexit, dexit ( and so on ) is now definitely off the cards. although support for the euro area is now higher, it is

pre - crisis imbalances and shortcomings in the way the emu responded to major shocks. the diverging experiences of the member states after the crisis have renewed the focus on achieving convergence across the eu. convergence may indeed be important for the cohesion of the monetary union, as it helps to ensure that the gains from economic integration are shared. countries such as germany are now well above their pre - crisis gdp levels, but for other countries such as italy, gdp is only expected to return to its pre - crisis level in the mid - 2020s ( last quarter gdp 1. 5 % on a yearly basis ). while recent economic developments are indeed encouraging, a lot remains to be done to overcome the legacy of the crisis years. the euro area is finally witnessing a decent economic recovery, but it would be wrong to be complacent. the single currency remains vulnerable in its institutional architecture, and faces many unresolved problems at the national level. a lack of productivity catch - up – lower productivity growth in countries with lower initial per capita income and productivity – explains much of the lack of income convergence within the euro area. countries with lower initial productivity levels can have larger productivity gains from labour and product market reforms than countries with higher initial productivity. in light of the above, structural reforms are critical to reducing productivity gaps to foster real income convergence. 6 / 17 bis central bankers'speeches all in all, the current situation is much improved, but economic reforms in the goods, capital and labour markets which remove barriers to competition and increase market flexibility are essential for the smooth functioning of the economic and monetary union ( emu ). such reforms are key to raising productivity and employment in the euro area, thereby supporting the growth potential of the euro area in the long run. what is also needed is investment in talent and human resources, on which the european union is currently lagging behind its major competitors. 1. 4 the political landscape : where is europe headed? unlike earlier in the year, when the prospect of a populist far - right turn of the french electorate in the presidential elections in may was a serious cause for concern, political instability is no longer at the top of the agenda for the member states of the eu. global markets have been nervous lately, but the source of their worries this time isn ’ t in the eurozone. instead, political uncertainty has risen around the us, as the white house under president trump is in turmoil. the uk, meanwhile, is struggling