jurgen stark : structural reforms in europe bullet points by mr jurgen stark, member of the executive board of the european central bank, for a speech delivered at the oecd - imf conference on structural reforms in europe, paris, 17 march 2008. * * * • it is well established that the lack of structural reforms is the main factor behind the relatively disappointing economic performance of some euro area countries over the last few decades. despite the acceleration in economic growth of the last three years, the gap in gdp per capita between the euro area and the united states remains substantial, reflecting lower levels of both productivity and labour utilisation. overcoming these constraints to growth is essential in the current environment, where the european economy is facing a number of important challenges, including rapid technological change, accelerating globalisation and ageing populations. • the emu is a catalyst for structural reforms in europe. within the monetary union, regional monetary and exchange rate policies are no longer viable options. flexible and integrated labour and product markets are therefore a prerequisite for the smooth functioning of the euro area, including countries ’ ability to absorb shocks and fully benefit from emu. this is why a price - stability orientated monetary environment in principle provides more, not fewer, incentives for national governments to implement structural reforms. • the performance of the euro area policy framework, however, has been mixed. on the one hand, the first nine years of emu have been characterised by low and stable inflation and firmly anchored inflation expectations, vindicating the monetary policy framework laid down in the maastricht treaty. on the other hand, the overall achievements of economic policies over the last nine years have been rather disappointing. progress with structural reforms still falls short of expectations, fiscal policies in some countries conflicted with the rules of the fiscal framework, eventually leading to an adjustment of the rules rather than of policies, and also wage policies have often not taken sufficient account of the requirements of the new situation of a single currency. • the institutional framework of the emu provides european policy - makers with the tools to successfully address the challenges ahead. the maastricht treaty established a clear allocation of responsibilities to different policy areas, reflecting the fact that assigning policy instruments primarily to one single policy objective and making individual policymakers responsible for one single policy instrument ensures a high level of effectiveness and accountability. • the single monetary policy was given the task of maintaining price stability in the euro area and was assigned to the ecb as an independent, su

which are closer to the single monetary policy. while the euro area banking markets for wholesale and capital market - related activities show clear signs of increasing integration since the introduction of the euro, the retail banking segment has remained more fragmented, leaving european consumers unable to take full advantage of the benefits of the emu and the single market. 4 • while there has been progress in the implementation of structural reforms in europe, the catalyst role of emu in improving europe ’ s growth potential has not yet been fully exhausted. the lacklustre performance in many euro area countries is rooted not in deficiencies in the current institutional framework, but rather in some national governments ’ lack of willingness to implement structural reforms. the reasons why politically motivated governments tend not to implement sufficient structural reforms are by now well known. structural reforms typically have positive, long - term effects, which can be difficult to ascertain in advance, but often negative short - term effects that are relatively more visible to voters. • it has sometimes been argued that some macroeconomic stimulus from aggregate demand policies might help foster the implementation of structural reform packages by offsetting potential short - term costs of reforms. this idea that there could be a trade - off between structural reforms and macroeconomic accommodation is disputable, notably in the emu. such accommodation could be provided either by monetary policy or fiscal policy, which i will now discuss in turn. • in the emu monetary policy is not the appropriate tool for mitigating the potential shortterm costs of structural reforms or for providing incentives for reforms at the national levels. first, reform needs differ across euro area countries and the single monetary policy is by its very nature unable to mitigate the potentially different short - term countryspecific costs of reforms. second, there are well - known and overwhelming implementation problems of ex ante coordination between policy makers with different objectives. this typically gives rise to incentive distortions for the policy actors involved. an immediate consequence of any attempt to seek closer coordination with the ecb would be a blurring of responsibilities, which would lead to every institution being made responsible for everything, which in the end would mean that, amid confusion, no institution was responsible for anything, and no successful reform implemented. • price stability is the best contribution monetary policy can make to structural reforms in europe. by improving the quality of relative price signals, our price stability - orientated monetary policy makes it easier for policy makers and european citizens to identify the areas in which structural reforms are most needed