1 % of gdp in 2011. it is expected to fall to 3. 2 % in 2012. the french deficit, for instance, came in at 5. 2 % of gdp in 2011, 0. 5 percentage points below the government ’ s target. i expect france to continue on this path and to achieve the 3 % deficit target in 2013. but while fiscal consolidation is a necessary pre - condition for sustainable growth, it is not sufficient. so the debate is not about austerity versus growth, instead it is about austerity and growth. we need both. no one is against growth, but growth cannot be achieved by spending programmes which fuel the economy for a quarter or two but are no more than a flash in the pan. the important bis central bankers ’ speeches thing is to find ways to increase the growth potential, and this is far more challenging than introducing popular but short - sighted initiatives. from my perspective, a growth package should have three components : i ) reforms in product and services markets ii ) reforms in labour markets ii ) funding of growth initiatives. as regards reforms in services markets, for example, policy instruments that could help to boost growth already exist at the eu level. the services directive was adopted in 2006. however, it has not yet been fully implemented in all member states. nine out of ten new jobs in the eu are created in the services sector. yet cross - border provision of services in the eu remains difficult. while 70 % of the eu ’ s gdp is generated in services, only 20 % of services are provided cross - border. up to 1. 8 % in additional growth could be unleashed for the eu with the full implementation of the services directive. the june european council will adopt measures to make sure that the growth - enhancing potential of the services directive is fully exploited. in labour markets, we see that member states have started to implement important structural reforms. spain is increasing the flexibility of employment contracts and addressing the problem of the country ’ s “ dual labour market ”. here in poland, the increase in the retirement age to 67 is a good example. it illustrates the fact that implementing structural reforms can be painful. but this pain should pay off in the future, as we have seen in germany with the “ agenda 2010 ” labour market reforms implemented from 2003 to 2005. germany is now profiting significantly from these reforms now. a key factor in labour market reforms is mobility – particularly in the euro area, but also at the level of the eu 27

an issue we have been discussing around our board table for some time. while low growth in wages has helped boost employment, it has also put the finances of some households under strain, especially those who borrowed on the basis that their incomes would grow at the old rate. and in terms of the inflation target, it is difficult to see how a continuation of 2 per cent growth in wages is compatible with us achieving the midpoint of the inflation target – 2½ per cent – on a sustained basis. so from that perspective alone, a pick - up in wages growth over time would be welcome. perhaps more importantly, sustained low wages growth diminishes the sense of shared prosperity that we have in australia. in our liaison with businesses, including here in adelaide, many tell us about the very competitive environment in which they are operating. they tell us about how this competitive environment means that they have limited ability to pay bigger wage increases. at the same time, though, we are hearing a few more reports of larger increases in those areas where there is a shortage of workers with the necessary skills. after all, the laws of supply and demand still work. we also see evidence in the aggregate data that wages growth has troughed and we expect to see a further pick - up. this is likely to be a gradual process, though. at today ’ s meeting, the board also reviewed the staff ’ s latest forecasts for the economy. these will be published on friday in our quarterly statement on monetary policy. those of you who are close readers of this document will notice some changes in this issue, as we seek to make the report more thematic. the latest forecasts should not contain any surprises, with only small changes from the previous set of forecasts, issued three months ago. this year and next, our central scenario remains for the australian economy to grow a bit faster than 3 per cent. this would be a better outcome than the average of recent years. if we are able to achieve this, we will make inroads into the remaining spare capacity in the economy and see a further modest decline in the unemployment rate. inflation is expected to remain low, at around its current level for a while yet, before gradually increasing over the next couple of years, towards 2½ per cent. a key element here is the pick - up in wages growth that i just mentioned. so, in summary, there has been progress in lowering unemployment and having inflation return to around the middle of the target range,