. for example, due to its higher share of capital goods exports, germany might have also benefited, to a greater extent, than both italy and france, from the sustained world demand. italy and france, by contrast, have a significantly higher export specialisation in consumer goods. in the medium - term, however, it is in particular the lower productivity growth, which weighs on the competitiveness of european firms. since the mid - 1990s, productivity has slowed down substantially in the euro area, leading to a productivity gap with the us. while this gap is closing more recently, improvements in euro area productivity seem to be cyclical and not of a structural nature. at the same time, labour markets in euro area countries have see fontagne et al. ( 2008 ). witnessed an increase in participation rate and a decline in the unemployment rate. however, the employment rate still falls behind the objective of 70 % set by the lisbon strategy, and unemployment rates remain unacceptably high in a number of euro area countries. these weaknesses in economic performance point to continued rigidities and imperfections in the euro area economy. to ensure that the advantage of european exporters in specific high value added varieties is not eroded over time, to regain price competitiveness across all euro area countries, and to improve labour market performance and potential output growth, the euro area needs to implement structural reforms directed to boost productivity growth and enhance the functioning of both labour and product markets. this is even more crucial in a monetary union. since euro area countries can no longer rely on monetary policy and nominal intra - euro area exchange rate adjustment to adjust to adverse shocks and the challenges posed by globalisation, other adjustment mechanisms become even more important. in this context, wage and price flexibility plays a pivotal role. the smooth functioning of the price mechanism is a prerequisite for the efficient allocation of resources across different sectors and over time. in the same vein, the mobility of capital and labour across countries and regions and between different sectors is of particular importance in a monetary union. it is therefore essential that governments establish an institutional framework which allows the economic adjustment processes to function efficiently and effectively. in particular, setting appropriate incentives for economic agents and thus enhancing the overall growth performance of the economy require further progress in following 5 main policy areas : • policies enforcing competition in product markets and promoting further integration, which will reduce excessive price margins and set incentives for entrepreneurs to become more productive. • improving the business environment, enhancing innovation and increasing the skill level of

mario draghi : competitiveness – the key to balanced growth in monetary union remarks by mr mario draghi, president of the european central bank, at treasury talks “ a european strategy for growth and integration with solidarity ”, a conference organised by the directorate general of the treasury, ministry of economy and finance – ministry for foreign trade, paris, 30 november 2012. * * * ladies and gentlemen, i am delighted to be here in paris and to have the opportunity to discuss with you the challenges of restoring growth and job creation to the european economy. we are doing so against the background of a relative stabilisation of market conditions, and more generally of improved confidence about the stability of the euro area. fears that the euro could be reversible have been addressed. the recent announcement of the outright monetary transactions ( omts ) can be taken as an example of how to address tail risks, with possible severe consequences for price stability over the medium term and how to bring confidence back to the euro area financial markets. the confidence effect of the omt announcement has been significant, and rightly so. excessive government bond spreads have gone down, corporate bond and covered bond spreads have tightened, and a number of banks in stressed countries have been able to regain market access. these developments are very important for the prospective financing of the real economy. the relative stabilisation that has occurred, however, does not rely solely on the determination that we have shown at the ecb. it also relies, crucially, on the determination of governments to validate two assumptions : first is the collective commitment of all governments to reform the governance of the euro area. this means completing economic and monetary union along four key pillars : • a financial union with a single supervisor at its heart, to re - unify the banking system ; • a fiscal union with enforceable rules to restore fiscal capacity ; • an economic union that fosters sustained growth and employment ; and • a political union, where the exercise of shared sovereignty is rooted in political legitimacy. to borrow a turn of phrase from our late colleague tommaso padoa - schioppa : these are not short - term matters. but they are urgent matters. the second condition for lasting stabilisation is the individual commitment of each government to maintain or restore in their own country the conditions of competitiveness that are at the source of balanced growth and employment. this is the aspect i would like to focus on now. i welcome the consensus that now exists in france that