jean - claude trichet : how to elevate the potential growth rate of europe speech by mr jean - claude trichet, president of the european central bank, at the ludwig erhard lecture, berlin, 16 october 2006. * * * sehr geehrte damen und herren, sehr geehrter professor doctor tietmeyer – ich mochte lieber sagen : mein lieber freund hans ; ich freue mich sehr, heute im rahmen der v. ludwig - erhard - lecture anlasslich des 75. geburtstags von professor tietmeyer hier bei ihnen zu sein und meine gedanken zur steigerung des potenzialwachstums in europa mit ihnen zu teilen. first of all, dr hans tietmeyer is a pioneer of economic and monetary union and the euro, and so, for obvious reasons, i feel close to him and responsible for ensuring that his work on the european project is continued. i particularly share his views on how to conduct monetary policy. allow me to quote him to illustrate my point, “ in the longer run, monetary stability has proved to be unequivocally beneficial for growth and employment. moreover, it is the most social of all conceivable economic strategies ” 1 second, and on a more personal basis, i pride myself on being among his friends for more than 20 years. thanks to leaders like hans, who shared the same vision for the future of europe, in 1999, 11 european countries introduced the single currency, followed later by greece. slovenia will join the euro area next year. the introduction of the euro has been a remarkable success, acknowledged not only in europe but in the whole world. however, to continue fully exploiting the benefits of the euro, europe has to face important challenges that require major policy measures. indeed, when comparing the euro area ’ s economic performance to that of the us in terms of growth, there is clear evidence of the fact that we have still a lot of progress to make. since 1996, the annual growth rate in the euro area has averaged 2. 1 % per year 2 compared with 3. 4 % in the us, reflecting a particularly mediocre euro area ’ s growth potential. as a result, while in 1996, the gdp per capita level in ppp in the euro area represented 84 % of the us level, it represented

employment particularly in the unskilled segment of the labour market have certainly contributed to the observed slowdown in labour productivity growth. however, this apparent trade - off between labour utilisation and productivity is likely to be a temporary phenomenon that should fade when the economy reaches a higher “ equilibrium ” labour / output ratio. however, it is worth mentioning that the us managed at the same time to increase both labour input and labour productivity. this leads to my final point. there is indeed another factor that explains the difference in the rate of labour productivity growth in europe compared with the us, which in my view is a major policy concern, namely the fact that europe is lagging behind in terms of innovation and more specifically the diffusion of information and communication technology ( ict ). several authors have already highlighted the major role of ict in the revival of labour productivity growth in the us. 7 while the ict sector is the single most important source of productivity growth, it represented only 40 % of eu productivity growth compared with 60 % in the us. in 2004, total r & d investment in the eurostat and oecd. oecd. source : eurostat and the oecd. see oliner and sichel ( 2002 ), “ information technology and productivity : where are we now and where are we going? ”, federal reserve board. see also jorgenson, d, m s ho and k stiroh ( 2002 ), “ information technology, education, and the sources of economic growth across u. s. industries ”, mimeo. euro area accounted for 1. 9 % of gdp and the ict sector represented as much as 20 % of this amount, while in the us, 2. 8 % of gdp was spent on r & d and the ict sector represented as much as 30 % of this total. 8 even more important is the effect ict diffusion has had on productivity in the us economy, particularly in the services sector, with a substantial impact on retail and wholesale business and on the financial services sector. ict investment, which is a good indicator of ict diffusion, represented 4 % of gdp in the us over the period from 1996 to 2004 compared with only 2 % in the euro area. 9 the structural characteristics of the us economy – a more flexible labour market, a higher degree of competition in product markets and lower barriers to entry for new firms – were apparently more conducive to exploiting the opportunities provided by new technologies. by contrast, the productivity growth performance in europe