. hence public policies could focus on helping people back into work, and into jobs where they can develop and refine their skills. finally, the third dimension relates to the scope of the reform agenda. structural reforms should not be limited to product and labour market reforms. strong institutions and a well - functioning financial sector at national and euro area level are necessary conditions to ensure that the impact of other reforms actually materialises. our reform agenda should be sufficiently broad and tackle the binding constraints in the economy. this requires country - specific and countrytailored solutions which allow each member state to find and exploit their comparative advantages in the single market. 20 but it does not mean that countries can reform independently of each other. indeed, to ensure convergence, countries do not necessarily need to have the same economic structures, but they do need to ensure that their economic structures foster resilience and contribute to a more homogeneous transmission of common shocks. for example, if one set of countries focuses mainly on reforms to make wages adjust more quickly in response to shocks, and another on reforms to produce adjustment through employment, the first group will recover more quickly than the second. research21 has shown that countries will only converge in their 3 / 5 bis central bankers'speeches response to shocks if they have a broadly similar mix of labour market institutions – or to put it another way, broadly similar phillips curves. encouragingly, this research finds that changes in labour market institutions since the creation of the single currency have actually contributed to a more homogeneous transmission of common shocks. however, the dispersion could still be considerably reduced. 22 from a euro area perspective, it is thus vital to ensure sufficient resilience and convergence among countries so that all can benefit from monetary union, but not so much as to interfere with national social choices. so this brings me to the question : what role can european institutions play in ensuring resilience and convergence among euro area countries? while the responsibility for structural reform has so far primarily been at national level, european institutions have a strong coordinating role to play. however, relying merely on rules and coordination to achieve mutually beneficial outcomes may not always be sufficient. in some areas, such as banking sector policy, moving from a system of rules and guidelines for national economic policymaking to a system of further sovereigntysharing within common institutions has been highly beneficial for the union and its member states. over recent years a quantum leap forward has been taken by moving from decentralised banking supervision and resolution to the single supervisory mechanism

has been shown to lead to easier financing conditions for companies, to stronger entrepreneurship and to higher productivity. 2 reforms have generally been stepped up in the euro area. the oecd ’ s going for growth – which identifies and reviews progress on five key priorities in areas including labour, product markets, and tax and transfer systems as well as on financial sector reform for all oecd countries – shows an increase in the reform momentum in most euro area countries since the start of the crisis. results from the european commission ’ s labour market reforms database ( labref ) show a similar trend. in addition, the commission has assessed that at least “ some progress ” has been made on around two - thirds of the country - specific recommendations issued between 2011 and 2016. 3 even more important, an increasing number of empirical studies confirm the positive economic 1 / 5 bis central bankers'speeches impact of these reforms. for instance, in italy the introduction of a new permanent contract in 2015 led to a 5 % increase in new gross hires. 4 along similar lines, the spanish labour market reform is found to have increased the likelihood of exiting from unemployment to employment, while the direct transition from temporary to permanent positions is also eased by the reform. 5 meanwhile, evidence based on micro - data for portuguese firms shows that the liberalisation of product markets has lifted the productivity of downstream industries, even in the short run. and research has shown that even smaller - scale reforms and in particular those that can reduce the fixed costs of firms, such as measures to reduce red tape, can have significant positive effects. 6 these positive developments should not mask the long - term challenges that the euro area is still facing. our estimate of potential growth has declined substantially over the past two decades – in part due to the decline in multifactor productivity growth. the public sector debt ratio remains elevated, while our population is ageing. overall, structural indicators still reveal substantial gaps, both between euro area countries and relative to best performers. this matters not just for welfare and social cohesion within individual countries. it also matters for the functioning of monetary union. if countries have very different economic structures, their business cycles will diverge when faced with common shocks : some will return quickly to trend growth and full employment, while others will require a longer period of recession for prices and quantities to fully adjust. by contrast, better, mutually compatible economic structures among countries support growth on a sustainable basis and produce less dispersion when recessions hit. reforms which