%, remains considerably lower than the employment rate in the us, where it stood at 71 % in 2005. the main factor behind these developments is the disappointingly low trend in hourly labour productivity growth in the euro area, which declined to an average 1. 2 % over the period 2000 - 2004, down from 1. 8 % during the 1990s and 2. 4 % during the 1980s. by contrast, in the us hourly labour productivity growth accelerated to an average of 2. 8 % over the period 2000 - 2004, which is more than double as high as in the euro area. the lack of sufficient flexibility in labour and product markets in europe is, in my view, a major determinant of the sluggish economic growth and of the still high unemployment in the euro area. i will therefore now turn to structural reforms that have the potential to increase both euro area labour productivity growth and labour utilisation, and therefore also the long - run growth potential of the economy. without aiming to be exhaustive, i should like to highlight some of the key priorities for reform in three main areas, namely getting people into work by enhancing the functioning and the flexibility of the labour market, increasing competition in product markets and unlocking business potential by creating an entrepreneurial - friendly economic environment. finally, i shall address the main fiscal policy challenges and in particular the implications of population ageing in the euro area for the sustainability of pension and healthcare systems. first of all, well - functioning labour markets set the right incentives for households which take decisions concerning their participation in the production process by entering the labour market and actively searching for a job. some observers have argued that european households prefer to work less in comparison with, for example, us households, thus attributing the relatively low participation in the labour market to some deep behavioural motivation or preferences. in my view, this argument is not satisfactory. the low labour participation rates in the euro area are significantly influenced by structural distortions like the legal and regulatory environment, the tax systems and social institutions. for example, marginal tax rates that are too high discourage labour market entry and have a downward effect on average hours worked. moreover, restrictions on the maximum number of hours worked, imposed either by social partners ’ agreements or by law, are also often not in line with preferences of a number of individual employees. furthermore, benefit systems that are too generous discourage job search and early retirement schemes encourage early withdrawal from the labour market. rigidities caused by regulations,

maintaining price stability in the euro area. the process towards monetary union and the stability - oriented monetary policy of the ecb have improved the welfare of euro area citizens, both directly by maintaining price stability and indirectly by contributing to lower volatility and uncertainty of macroeconomic developments. first, in concomitance with the intra - euro area convergence process in the 1990s, inflation volatility almost halved. the volatility of quarterly changes of hicp inflation in the euro area ( measured as the standard deviation ) fell from around 0. 6 percentage point during the 1980s to around 0. 3 percentage point in the 1990s. over the last seven years, inflation volatility has only been 0. 2 percentage point, in spite of major inflationary shocks during this period. and the average volatility of long - term consensus inflation expectations has also declined substantially, by four - fifths, from almost 0. 5 percentage point in the 1990s to less than 0. 1 percentage point in recent years. lower volatility of actual and expected inflation reduces consumer and investor uncertainty and thereby benefits all citizens. stable inflation expectations and a high degree of confidence on the part of financial market participants in monetary policy should, over time, also lead to a reduction in the volatility of longer - term interest rates, and thus also to lower risk premia. indeed, we have seen a substantial decline in the volatility of long - term interest rates. in the 1990s, for example, the standard deviation of long - term interest rates ( on the basis of monthly data ) was around 2 percentage points ; in the past seven years, this measure has fallen to around 0. 7 percentage point. anchoring inflation expectations is not only important for maintaining low medium and long - term market interest rates, it is also crucial for reducing macroeconomic fluctuations in response to economic shocks. it is welcome if wage and price - setters in the euro area incorporate an inflation rate which is in line with our definition of price stability. indeed, less indexation of wages and prices to current and past inflation would tend to contribute to lower volatility of employment and output in response to macroeconomic shocks. under current circumstances, this implies that higher inflation due to oil price shocks and higher indirect taxes should not be included in wage contracts. otherwise unemployment and inflationary pressures would increase. it is sometimes argued that a policy aimed at price stability could lead to higher unemployment and increased macroeconomic volatility. it will not