interest rates across key industrial countries in recent years supports this hypothesis. however, this co - movement in long - term interest rates might also be the outcome of global shocks which affect different countries in much the same way and, therefore, prompting similar national monetary policy responses. in this case, the co - movement in national longterm interest rates does not necessarily imply that central banks no longer exert an influence on their domestic long - term rates. 2. 3 credit channel the credit channel consists of several sub - channels with the bank lending channel and the balance sheet channel probably being the ones that have been most analyzed. whereas the bank lending channel concentrates on the supply of bank loans, the balance sheet channel looks at the effects of monetary policy on the overall supply of funds via borrowers ’ net worth. as concerns the bank lending channel, a number of studies document that financial innovation – such as securitisation or credit derivatives – have led to banks becoming more flexible in reacting to monetary policy. more specifically, they may have become able to better isolate their loan costumers from restrictive monetary policy impulses. 2 consequently, financial developments may have made the bank lending channel less important. however, to the extent that credit protection through credit derivatives is associated with an increase in bank credit supply the importance of the bank lending channel has not necessarily changed. for example, the possibility of transferring credit risk may not result in reducing risk from a see boivin, giannoni, mojon, “ how has the euro changed the monetary transmission? ”, nber working paper no w14190. see for example altunbas, gambacorta and marques - ibanez ( 2007 ), “ securitisation and the bank lending channel ”, ecb working paper no. 838. see for example hirtle ( 2007 ), “ credit derivatives and bank credit supply ”, federal reserve bank of new york staff report no 276. specific activity ( such as lending ) may increase that activity. in such a case, monetary policy would still operate through a bank lending channel as capital requirements would still be effective. according to the balance sheet channel, possible interest rate changes influence the creditworthiness of borrowers via the evaluation of their assets. creditworthiness, in turn, influences the premium that borrowers have to pay for external financing, and, thus, economic activity. while the analysis of the balance sheet channel was originally applied to non - financial institutions, the deep

a major impediment to small business growth. another core task in growth - spurring labour market reform will be to bring down non - wage labour costs, which are a major barrier to employment growth. that is equivalent to further reforming the social security systems. we have already added a small but fully - funded pillar to our pay - as - you - go pension system. however, pension reform is still unfinished business. employees will need to resort to more private provisioning. in terms of growth orientation, europe has been a bit of a laggard, although we have sound economic fundamentals. the time for more structural adjustments has undoubtedly come. they should help to both exploit and raise the growth potential. in general, economic policymakers need to provide a viable framework for giving enterprises and house - holds certainty of planning. pro - growth policies are not restricted to domestic issues. a coherent approach to pro - growth policies must encompass liberal trade policy. lowering barriers to trade and granting market access must be part of any credible set of pro - growth policies. there are really few things economists are willing to agree on, but the benefits of free trade are among them. therefore, the doha round of international trade negotiations is another great opportunity for the world economy to foster growth. 2. 3 a sound financial system the third factor in policies for sustainable growth is a sound financial system. it is a necessary precondition for the exploitation of the growth potential. there can be no investment without financing, and there can be no proper financing without a sound financial sector. it is not a question of whether a financial system is a capital market system or relies more on banks for the allocation of funds. by tradition, continental europe tends to be more bank - centred than the english - speaking countries. this tradition is now under change. not even the setback for financial markets which followed the bursting of the millennium bubble brought this process to a halt. under the new single currency, capital markets in the euro area have begun to play a larger role in financing. financial integration is - aside from price stability - one of the hopes we had for the euro. it materialised quickly. more liquid and more thoroughly integrated euro - area capital markets are providing businesses with better and more diverse financing options. ever more companies are going straight to the market, implying a changing role for banks. the euro - area financial system is becoming more balanced. finance in europe - which has not been bad before the euro arrived! - achieved a