- term. for instance, despite the recession in italy, unit labour costs have adjusted by only 0. 1 % relative to the euro area average since 2008. this is because many sectors of the economy are sheltered and wages do not respond to weak productivity. it needs product market reforms to increase competition and reinvigorate its external competitiveness. in spain, employment is struggling to rebound, and the burden on unemployment falling disproportionately on the young, because its two - tier labour market protects insiders. it needs labour market reforms to bring in outsiders and improve incentives to hire. the conclusions propose to kick - start this much - needed process of reform through three avenues. first, a renewed effort to complete the single market, in particular by opening up services and increasing labour mobility. second, a thorough assessment, carried out in all euro areas countries, of the compatibility of their labour and product markets with membership of emu. and third, for the issues identified in this assessment to be addressed through the new concept of “ reform contracts ”. let me elaborate some more on this last point. the idea behind the “ reform contracts ” is that countries would commit to specific structural reforms that have a direct positive impact on competitiveness, with those commitments formalised in a legally binding contract. the contract would be multi - annual and, to foster national ownership, initiated by the national government and approved by the national parliament. if the terms of the contract were met, financial support would be provided, targeted at the transitional costs arising from structural reforms – for instance, re - training programmes for displaced workers. what are the benefits of this approach compared to the status quo? in my view there are three, although they depend very much on how the concept is eventually implemented. first, the contracts could be entered into as part of a concerted national reform effort, rather than being seen as an imposition from “ brussels ” in the context of the eu procedures like the european semester. second, reform commitments could potentially be more precise, measurable and binding in the contracts than under those existing procedures. however, this effect would quickly be lost if it simply becomes another bureaucratic procedure. third, and perhaps most importantly, because the contracts are multi - annual they could allow for deeper reforms than are possible under existing procedures. there have been a series of recent studies that suggest that competitiveness is not only about flexibility, but also strongly connected to governance. we see clear correlations between countries ’ economic bis

jean - claude trichet : ( under - ) pricing of risks in the financial sector speech by mr jean - claude trichet, president of the european central bank, at the coface country risk conference 2009, paris, 19 january 2009. * i. * * introduction ladies and gentlemen, the current juncture presents us with a particularly important moment to conduct a deep analysis of the pricing of risk – and the mis - pricing of risk – in the financial sector. it is no exaggeration to say that, for several decades, there has been no more relevant moment for this topic than today. in my view, the appropriate identification, assessment and handling of risks in the financial sector are the key issue to be considered most carefully amid the current global financial turmoil. looking back, the main factor that i would identify as underlying the turmoil is the broad - based under - appreciation of risk. this under - appreciation of risk has been observed across financial institutions, across markets and across economies. looking ahead, the main lesson i believe we need to draw is therefore for the financial sector to establish a much more rigorous identification, assessment and handling of risk. against this background, i am very pleased to participate in this major conference on risk analysis today. it brings together specialists from france and abroad from the banking and corporate sectors as well as from academia. in my remarks, i would like to share with you some thoughts on three areas : the fundamental causes of the financial turmoil, the main avenues for financial sector reform and some of the broader lessons to conclude from the current episode. ii. under - pricing of risk let me begin with the causes of the turmoil : in the four years to august 2007, macro - financial conditions were very favourable on the surface. economic growth was exceptionally strong and stable, liquidity in capital markets was abundant and the financial sector was providing remarkable returns : profitability was high, many asset prices were rising, implied volatilities in equity markets, bond markets, credit markets and foreign exchange markets were all very low by historical standards, and finally : risk premia were extraordinarily small. at the same time, the world economy was growing vigorously, in an overall low inflation environment and stable macroeconomic environment as a whole. the only warning sign, which was brushed aside by many economists, consisted of the significant build - up of imbalances at various levels in the global economy and the global financial system. against this apparently favourable economic background, innovation was rapidly taking place in