jean - claude trichet : how can we increase growth potential in europe? speech by jean - claude trichet, president of the european central bank, at the suomi areena 2007, pori, finland, 20 july 2007. * * * dear governor liikanen, i would first like to thank you very warmly for inviting me on the occasion of the “ suomi areena 2007 ” event. it is a pleasure and a honour to be here today and to share with you my views on “ how can we increase growth potential in europe ”. in light of the partly disappointing euro area economic performance in the past, it is a major policy issue. by contrast, the impressive performance of the finnish economy, with output and productivity growth over the second half of the 1990s among the highest in the european countries, [ real gdp and hourly labour productivity grew on average by 3. 8 % and 2. 7 % respectively between 1996 and 2006 ], offers a good illustration of what could be done to increase growth potential in europe. the transformation of the finnish economy over the last decades represents one of the examples of the “ knowledge based - economy ” taking hold in europe. against this background, i will first review the past economic growth performance of the euro area in comparison to the us and focus on some of the underlying factors of potential output growth. then i will elaborate on the reforms which i consider essential to increase the potential growth rate of europe. the economic performance of the euro area since the mid - 1990s since 1996, the annual growth rate for the euro area has averaged 2. 1 % per year compared to 3. 3 % in the us. what are the fundamental causes of this unsatisfactory low trend growth in the euro area? the answers can be found by looking at the factors that determine potential or long - term economic growth, namely 1 : • the degree of labour utilisation, • productivity growth, • and the demographic trends. - over the period 1996 - 2006, the euro area witnessed a slight improvement in the utilisation of labour, which increased on average by 0. 4 % per year ( compared with 0. 1 % in the us ) when defined as the total annual hours worked divided by the total population. labour utilisation reflects the extent to which the potential labour resources in an economy are actually utilised and therefore have a direct influence on output growth. this improvement in labour utilisation mainly reflects the significant rise in the euro area overall employment rate

potential. v. current and future conduct of monetary policy a. decisions made at the mpm held on january 21 and 22, 2013 at the mpm held on january 21 and 22, 2013, the bank decided to take additional steps to provide monetary accommodation decisively by introducing two measures : the “ price stability target ” of 2 percent in terms of the year - on - year rate of change in the cpi ; and the “ openended asset purchasing method ” for the asset purchase program ( hereafter the program ). in addition to these two measures, another important decision was the strengthening of policy coordination between the government and the bank. the bank, together with the government, decided and released “ joint statement of the government and the bank of japan on overcoming deflation and achieving sustainable economic growth. ” the bank had previously adopted a “ price stability goal in the medium to long term, ” judged to be in a positive range of 2 percent or lower in terms of the year - on - year rate of change in the cpi, and set a goal at 1 percent for the time being. as i will explain in detail later, the bank replaced this goal with the “ price stability target ” of 2 percent for the following reasons. first, there is an increasing awareness among the general public that even if the bank were to use the term “ price stability target ” it would not conduct monetary policy in an automatic manner in pursuit of a certain inflation rate. and second, as progress is achieved through efforts by a wide range of entities – such as those by the government to strengthen the competitiveness and growth potential of japan ’ s economy – an increase is likely to occur in the inflation rate at which firms and households perceive price stability – the basis for their economic activity. there is uncertainty with regard to how the strengthening of the growth potential of japan ’ s economy will proceed, but the bank expects the setting of this very ambitious target to have the secondary effect of encouraging efforts by a range of entities. in this regard, the “ price stability target ” of 2 percent could serve in a sense as a kind of “ slogan ” for the general public in the revitalization of japan ’ s economy. moreover, the bank has introduced the “ open - ended asset purchasing method ” without setting any termination date, to clearly show its strong determination to achieve the “ price stability target ” of 2 percent, which it considers will result in greater policy effects. under the current purchasing method – which makes a commitment in terms