of the economy. as we can only expect limited labour participation gains in an ageing society, to raise investment demand we therefore have to raise productivity. indeed, achieving an upward shock to tfp seems to me essential to trigger, in a sustainable way, a positive accelerator effect between productivity, investment and credit. but it requires an environment characterised by two things : competition and certainty. competitive markets are necessary to ensure that investment and productivity are indeed mutually enhancing, which as i said earlier is not a given : high investment in several euro area countries in the pre - crisis period did not lead to a convergence in tfp. certainly, an important reason for this was that too much capital flowed into real estate. but misallocation also resulted from low levels of competition in the non - tradable / services sector more generally which distorted price signals. as some firms could capture excess rents, a falling marginal product of capital was counterbalanced by rising profit margins, meaning that total compensation from investing in these sectors remained high. 16 so : the flipside of productive investment is more competitive markets that produce more accurate price signals, thus drawing resources to where they are most efficiently employed. achieving this requires not only product and labour market reforms that accelerate the “ churn ” process within and across sectors17, but also reducing unnecessary regulations that hinder the allocation and reallocation of resources. the world bank ’ s “ doing business ” report gives examples such obstacles. if an entrepreneur wants to start a new business in spain, she has to go through 10 separate procedures, while doing so in slovenia requires only two. if a firm wants to launch a green field investment, it would have to wait 200 calendar days in ireland before a new warehouse gets electricity ; in germany it would have to wait only 17 days. 18 there are reasons to be optimistic about the effects of a reform process in the euro area. recent micro - level research from the eurosystem ’ s competitiveness network, for instance, shows that there is a large and skewed distribution between the most and least productive firms in individual euro area countries. far from being normally distributed, there are a few highly productive firms and many which have low productivity. 19 this implies that a faster and more efficient reallocation across firms and sectors could be quite powerful. european commission ( 2013 ). for more on the effects of “ churning ” on productivity see foster, lucia, john haltiwanger, and chad syverson ( 2008 ),

“ reallocation, firm turnover, and efficiency : selection on productivity or profitability? ”, american economic review, 98 ( 1 ). world bank ( 2013 ), doing business 2014 : understanding regulations for small and medium - size enterprises. compnet task force ( 2014 ), “ micro - based evidence of eu competitiveness : the compnet database ”, ecb working paper series no. 1634. bis central bankers ’ speeches where certainty complements this process is by fixing expectations : the more firms trust that structural reforms will be followed through vigorously, the more they will be inclined to invest on that basis. put differently, certainty allows the positive medium - term effects of structural reforms to be brought forward into the present. the fact that euro area corporates are currently holding record amounts of cash, rather than investing, suggests that plans for structural reforms are not yet credible enough to reap this “ certainty dividend ”. certainty also extends to tax policy. remember that what matters for firms when deciding whether to invest is the after - tax return on investment. thus, if firms expect the burden of future taxation to rise, the internal rate of return on a given project is lowered, effectively cancelling out the stimulative effect of lower interest rates on investment. and by contrast, a lower expected tax burden increases the effectiveness of any monetary policy measures. but certainty means also that we stick to our commitments. indeed, sticking to our own commitments has to become the hallmark of the euro area. the ecb will continue to provide a nominal anchor to the euro area recovery by delivering its primary mandate to bring inflation back to a growth rate of below but close to 2 %. it is essential that in parallel all countries follow the rules outlined in the stability and growth pact ( sgp ) and in the macroeconomic imbalances procedure ( mip ) and that these rules are not stretched to the point where they would lose credibility. conclusion my main message today is simple : we need to focus on the quality of credit, not only the quantity. to create an environment where credit flows to productive investment requires a coherent and comprehensive approach. it requires managing the bank deleveraging process while the euro area transitions to a more balanced financing mix. it requires finding workable solutions to reduce the debt overhang involving both reducing debt and raising equity. and it requires acting on the basic determinants of investment demand, namely productivity. fortunately, all the pieces of the jigsaw are now in