, the largest productivity gains were not realized in the high - tech sector or from the it investments itself but from the widespread use of information and communication technologies in traditional sectors like wholesale trade, financial intermediation and construction. the new technologies led to a complete reorganization of the value chain thereby enhancing total factor productivity, albeit with a lag. one cannot entirely exclude that this leverage effect will simply occur with a lag in europe. after all, productivity growth is one of the least well understood phenomena in economics. while i do not want to exclude a productivity lag effect in favour of europe, i suspect the story is a more complicated and a more challenging one. structural conditions must be in place in europe to allow maximum flexibility so that the full potential of the new technologies can be unleashed throughout the real economy. conclusions the question of why the eu recovery is so slow implies a cyclical answer. the european track record of the last ten years, however, strongly suggests that there is a crucial structural dimension to the problem of weak european growth. the real challenge for the eu is to boost productivity growth and augment its potential growth rate. in the words of mervyn king : “ raising productivity growth is the key to improving the prosperity of future generations. ” 4 it is therefore not particularly meaningful to analyze the growth weakness in europe in purely cyclical terms. in other words, expanding fiscal and monetary policy will be no panacea to europe ’ s growth challenge. longer - term fiscal consolidation is imperative in light of a rapidly aging european population. on the monetary side, there is no indication that policy is too restrictive in light of real interest rates at or near zero for the eurozone. indeed, based on a standard taylor rule framework, the ecb ’ s monetary policy stance is equally or in the recent past even more expansionary than that of the federal reserve. at any rate, neither fiscal nor monetary policy can ultimately address structural impediments to higher growth dynamics in the euro area. in an effort to augment the eu ’ s growth potential, the focus must therefore be on breaking down labour market rigidities for additional labour input on the one hand and on accompanying policy measures to increase productivity on the other hand. despite the subdued nature of the current growth outlook which is adversely affected by a strong euro and rising oil prices, there are some promising signs that structural change is under way. both the gradual dismantling of the 35 hour week in france and the shift to part -

federal reserve and its first attempt to bring about a restoration of normal conditions. afterwards, i will give a brief presentation of the economic situation with a focus on europe. in conclusion, i would like to draw your attention to the dangers associated with a prolonged period of low interest rates. european financial markets calmer thanks to monetary policy if you take a look at chart 1, you can follow the movements in both the euro / swiss franc exchange rate and the average risk premium for the government bonds of five peripheral euro area countries ( italy, spain, greece, portugal and ireland ). the risk premium is drawn on an inverted scale, in other words, a movement downwards signifies a higher risk. this chart serves as an illustrative example for two developments. on the one hand, it shows that uncertainty in the euro area has decreased greatly over the past twelve months. at the time of the last money market event in geneva, the risk premium was almost 1, 200 basis points ; it is now below 400. on the other hand, the chart illustrates the fact that the upward pressure on the swiss franc has abated. following a long period last year when the exchange rate stuck closely to the minimum exchange rate of chf 1. 20, it moved away in january and, since may, has fluctuated within a relatively narrow range of chf 1. 22 – 1. 26 per euro. bis central bankers ’ speeches here, the situation has calmed in two respects. in order to reduce the risk of the euro area collapsing, the european central bank ( ecb ) resorted to an unconventional measure in late summer 2012, the outright monetary transactions programme. market participants were persuaded, and since then the risk premium for peripheral economies in europe has declined steadily. what is remarkable is how persistent this trend has been. the positive market sentiment on the european markets has defied both negative reports from the real economy and various political crises, even those in major member states such as italy. the lower interest rates have improved the growth outlook in the euro area and opened up a time window for structural reform. a certain degree of calming also occurred for the swiss franc exchange rate. demand declined for investments which were seen as safe havens, such as the swiss franc, with the result that foreign currency purchases to defend the minimum exchange rate have not been necessary for over a year. however, investors remain cautious, as can be seen in chart 1. first, the exchange rate did not perceptibly