is a normal phenomenon within a monetary union and is not in itself a cause for concern. in this respect, i should like to stress that a substantial process of convergence in per capita income has already taken place in the euro area over the last few decades. another source of divergence in the rates of price changes across euro area countries or regions may arise when countries or regions are affected by economic or policy shocks which are different in their nature or timing, or when, due to different economic structures, local economies respond differently to a common shock. one example of this would be a change in the oil price. although this is a common shock to the whole euro area, countries and regions in the euro area can be affected to a different extent, depending on their particular demand for ( or supply of ) energy. as differences in economic structures across countries are likely to remain in the future too, the fact that different regions in the euro area will face different economic shocks will be unavoidable. it is therefore crucial that national and local authorities have all the measures in place to facilitate a smooth and efficient adjustment to economic developments that affect countries and regions differently. one important equilibrating mechanism in response to such shocks is fiscal policy, through the operation of automatic stabilisers and the adoption of specific measures in the case of adverse shocks at the regional and national level. however, this requires sound budgetary positions over the medium term in accordance with the stability and growth pact. in this context, allow me to emphasise the responsibility of regional and local authorities to make an important contribution to the consolidation of public finances by exercising control over public expenditure. another important adjustment mechanism is mobility in the factors of production. the process of european integration has already led to a significant convergence of financial and capital markets and capital is now highly mobile at the international level. however, labour continues to be barely mobile within many euro area countries and almost immobile between countries. to this end, it is crucial – and i should like to encourage you – to make as much progress as possible in the introduction and acceleration of structural reforms aimed at increasing mobility, promoting flexibility in price and wage settings, enhancing competition and reducing distortions in product and labour markets. without these reforms, the loss of competitiveness deriving from rigidities will become a source of national, or regional, unemployment and inefficient under - utilisation of resources. stronger competition and the removal of structural rigidities will increase the flexibility of the economy and

jens thomsen : a brief look at developments in the danish economy statement by mr jens thomsen, governor of the national bank of denmark, at the meeting of the danish economic council, copenhagen, 31 may 2007. * * * since 2004, global growth has been around 5 per cent, and forecasts indicate that it will continue at this level in 2007 and 2008. in europe, growth expectations are higher than the council states, as the european commission's spring forecast shows. this implies a greater potential for danish exports. in other words, demand will still be considerable, notwithstanding the slower growth in private consumption than in 2006. whether consumption growth will fall to 1. 8 per cent is doubtful in view of the development in incomes and the employment situation. thus, the economy is still characterized by a pronounced shortage of labour in many areas. developments in 2006 show that in an upswing it is indeed possible to boost employment by reducing unemployment, increasing the participation rate and importing labour from abroad at the same time. this strategy should be maintained. the council's forecasts indicate that the capacity pressure will continue, and consequently fiscal policy should not stimulate activity. in terms of the proposal for an automatic fiscal - policy response to output gaps of a certain size, calculating the output gap constitutes a problem. different institutions do not reach the same result, and major revisions take place. ( see also : orphanides, a. and s. van norden : " the reliability of inflation forecasts based on output gap estimates in real time ", journal of money, credit and banking, 2005. ) consequently, a sort of a taylor rule for fiscal policy is not expedient. on the other hand, output gap is a relevant – but not the only – indicator when designing fiscal policy since, as the proposal entails, it will be necessary to deviate from a neutral fiscal - policy stance in only a few cases.