bankers ’ speeches this raises the question of whether policy is doing enough to compensate for these structural changes – in particular, whether it is creating the framework conditions for new business models to emerge that require higher levels of productive investment. for example, is regulation in all countries conducive to investment? 45 % of fixed investment in europe is estimated to be concentrated in sectors where governments have significant regulatory influence, implying that regulation could play an important role in boosting investment demand. even at the firm level, regulation can influence whether the most productive firms are allowed to grow. one well - known distortion in this regard is the change in status and requirements for firms in this country when they have 50 employees or more. is the tax code conducive to investment? what matters for investment demand is the aftertax return that firms receive, meaning tax incentives can improve the risk - return profile of investment projects, and even more so in a lower growth environment. in this country, several official reports have suggested that high corporate and labour tax rates hinder investment. the focus of the current government on this issue is therefore fully justified. is the education system conducive to investment? europe ’ s comparative advantage, like all advanced economies, is increasingly located at the high - end of the value chain. yet investment can only flow there if the workforce has the skills to match. around half the countries in the euro area rank below the oecd average for student performance in mathematics, reading and science, implying standards could still rise. indeed, educational attainment is no longer only a factor in income, but also in employment prospects : at the end of 2012 18 % of workers with low education levels were unemployed, compared with only 6 % of highly educated workers. all this underscores that, when we think about how to restore competitiveness in the euro area, we should not only think in terms of lowering wages relative to productivity. this may be a necessary short - run measure in some jurisdictions, but it is a zero - sum game : some countries benefit at the expense of others. the ultimate source of competitiveness for the euro area has to be productivity gains built on investment, and this is a positive - sum game. it raises welfare for the euro area on aggregate. what i am saying here is not new. the need for a continuous rise in productivity performance has long been recognised in europe ; it was the context for the launch in 2000 of the lisbon agenda, which aimed to make europe

including real estate, which is the sector associated with most of the severe financial crises in history. the mirror image of this development was a credit bubble in the banking sector, as banks financed both housing supply, i. e. loans to real estate developers, and housing demand – that is, mortgages. when the crisis broke out, this debt build - up quickly became a debt overhang. many advanced economies entered a prolonged period of deleveraging as firms, households and banks attempted to reduce their debt levels. for firms, this meant less investment. for households, less consumption. and for banks, less credit. moreover, the collapse of lehman brothers sent shockwaves through the global financial system leading to an unprecedented rise in uncertainty and risk aversion. this led to a further retrenchment in investment, trade and hiring and a globalised “ great recession ”. government budgets went deep into deficit to offset this massive shock to nominal spending. these events were not only shared across major economies, but they were also largely consistent with historical experience. there have been several episodes in economic history bis central bankers ’ speeches of large build - ups followed by periods of debt deleveraging. serious financial crises tend to be followed by slow economic recoveries. nevertheless, by mid - 2010, most advanced economies were showing signs of returning to growth, albeit at a slow pace. at this point, however, the trajectory of the euro area departed from others. while the recovery gained ground in the us in particular, the euro area entered into a second recession that lasted until the second quarter of 2013. why did this divergence happen? for two reasons that were specific to the euro area. first, the sequencing of policy responses after the first bail - out for greece aggravated concerns about bank and sovereign debt sustainability. second, these concerns interacted with an incomplete institutional framework in a self - reinforcing way. in addressing the situation in mid - 2010 – and with the benefit of hindsight – one could have legitimately expected the following sequence of actions. first, agree on a solid backstop for dealing with sovereign and banking sector problems. thereafter, conduct a stress test and recapitalise banks where necessary. then, with banks in a stronger position to absorb losses and a sovereign backstop in place, construct a consistent framework for dealing with sovereigns with excessive debt. finally, apply that framework to countries that were deemed to need it. for example, this sequence from backstop to stress test