. this sluggishness has been due in part to the severity of the financial shock associated with the crisis and the persistent headwinds to recovery in its aftermath. but the lack of fiscal support for demand in recent years also helps account for the weakness of this recovery compared with past recoveries. 1 in the united states, fiscal policy has been much less supportive relative to previous recoveries. for instance, at a comparable point in the recovery from the 2001 recession, employment at all levels of government had increased by about 800, 000 workers ; in contrast, in the current recovery, government employment has declined by about 650, 000 jobs. lessons what lessons can we draw from this experience? the first is that governments need to address long - term challenges and significantly improve their structural fiscal balances during good times so they have more fiscal space to provide stimulus when times turn bad. when poor economic conditions drive policy interest rates close to the zero lower bound, fiscal stimulus may be more effective than usual in boosting aggregate demand because it will not have the usual effect of raising real interest rates, thereby crowding out private demand. 2 a second lesson is that, while even if it is appropriate for fiscal policy to play a larger role when policy rates are near zero, policymakers nevertheless may face constraints in implementing fiscal stimulus. this means that central banks need to be prepared to employ all available tools, including unconventional policies, to support economic growth and to reach their inflation targets. see greg howard, robert martin, and beth anne wilson ( 2011 ), “ are recoveries from banking and financial crises really so different? ” international finance discussion papers 1037 ( washington : board of governors of the federal reserve system, november ). see, for instance, lawrence christiano, martin eichenbaum, and sergio rebelo ( 2011 ), “ when is the government spending multiplier large? ” journal of political economy, vol. 119 ( february ), pp. 78 – 121 ; and j. bradford delong and lawrence h. summers ( 2012 ), “ fiscal policy in a depressed economy, ” brookings papers on economic activity, spring, pp. 233 – 97. bis central bankers ’ speeches a third critical lesson pertains to the importance of having a sound and resilient financial sector with strong capitalization and prudent risk management, supported by effective regulation and supervision. the recent crisis has appropriately increased the focus on financial stability at central banks around the world. at the european

jean - claude trichet : structural reforms in the euro area speech by mr jean - claude trichet, president of the european central bank, at the council on foreign relations, new york, 24 april 2006. * * * it ’ s a pleasure for me to be here at the invitation of the council on foreign relations to share with you my views particularly on structural reforms in the euro area. economic performance of the euro area let me start with a brief assessment of the euro area ’ s economic performance by recalling a few facts. over the last years the euro area witnessed an improvement in the utilisation of labour, which increased on average by 0. 2 % per year between 2000 and 2004. 1 this mainly reflects the rise in the euro area employment rate from 61. 5 % in 2000 to 63. 6 % in 2005 2, being accompanied by a significant decline in the aggregate unemployment rate from 10. 5 % to 8. 6 % 3. remarkably, employment growth in the euro area showed resilience to the economic slowdown at the beginning of this decade, with employment growing on average by 1. 1 % over the period 2000 - 2005, compared to 0. 9 % in the us. 4 however, the employment rate in the euro area remains low by international standards – for example, the employment rate was 71. 2 % in the us in 2004 5 – and the unemployment rate is still much too high – compared with, for example, the unemployment rate of about 5. 0 % in the us in 2005 6. furthermore, since the launch in 2000 of the lisbon strategy - a comprehensive agenda of structural reforms aimed at profoundly transforming the eu - the annual growth rate for the euro area has averaged 1. 8 % per year 7 ( compared to 2. 8 % in the us ), thus remaining somewhat behind its main competitors. when comparing the euro area economic performance to the us, there is evidence of increasing disparities in growth. since the beginning of the 1990s, the gap in per capita income growth between the us and the euro area has continuously widened - by 0. 8 % on average per year during the 1990s, increasing to 1. 3 % per year from 2002 onward 8. the main explanatory factor behind these developments is the diverging trend in hourly labour productivity growth between the euro area and the us. during the 1980s hourly labour productivity growth was increasing at an annual rate of 2, 5 % in europe as compared to 1, 3 % in the