spain reforms were less fast and comprehensive. in spain, for instance, slow implementation of labour market reforms meant that wages continued to rise until the third quarter of 2011, despite output falling by almost 5 % in that time. in greece, labour market reforms were enacted early on but without in parallel opening up product markets, meaning that when wages adjusted, prices did not : the price level only began falling in october 2012. the result was that these countries experienced a quantity adjustment – higher unemployment – which triggered a protracted disinflationary process that is still ongoing. 12 in sum, while both options have been costly in terms of output and employment, and notwithstanding differences in labour market flexibility, in a situation where countries had to undertake an internal devaluation, accelerating the pace of reforms seems to have been the better approach. it has led more quickly to higher growth prospects and higher current and expected inflation – i. e. conditions where the positive income effects of reforms can outweigh the negative real interest rate effects. this contrasting experience also, in my view, disproves the view that reforms should be staggered because political capital is scarce. we have seen that this type of thinking tends to lead to authorities avoiding taking on organised vested interests – such a protected sectors – and instead prioritising measures that affect a more diffuse group – such as lowering minimum wages. indeed, this is why, despite the eu - imf programmes proposing a comprehensive approach to reforms, product markets reforms have tended to lag labour market reforms. and the consequence is not only the mismatch between different measures that i just described. it is that reforms have often been perceived as unfair, which in turn undermines popular support for the reform process. so for those that still need to press ahead structural measures, including the large euro area economies, there are two key points to take from this. for a more in - depth discussion on the link between wage developments and labour market institutions see the aforementioned speech by mario draghi at jackson hole. bis central bankers ’ speeches first, talking vaguely about structural reforms, but not doing them, is the worst of all worlds. it creates uncertainty over the path of real interest rates, without in tandem raising expectations of future growth. second, while in “ normal ” times it might be acceptable to reform one sector at a time, in crisis times it is not. fairness must be a priority. and the best way to align vested interests is to reform them all at once. why

differences in the extent to which capital and labour flow to innovative firms. for example, researchers at the oecd have found that a 10 % increase in the patent stock is associated with an increase in the typical firm ’ s capital stock of about 3 % in sweden and the united states ; 1. 5 % in the united kingdom and germany ; and a 0. 5 % in italy and spain. importantly, these cross - country differences tend be driven by younger firms, which are those that are most likely to supply radically innovative ideas. 19 the same product and labour market reforms that would spur innovation and adoption would also support better reallocation. employment protection legislation in particular is thought to significantly reduce the ability of innovative firms to attract resources. 20 this is not an argument to lessen workers ’ insurance against labour market risks, rather to shift the burden of that insurance away from firms and towards society more widely. this is where “ flexicurity ” type policies – active labour market policies, unemployment insurances – could play a greater role. reallocation is also linked to several other policies, which cannot be covered in detail now. they include aligning insolvency regimes with best practice so that resources can be released more quickly : for a firm to be resolved takes less than six months in ireland, for example, while in slovakia it takes about four years. 21 and they include channelling financing more effectively to innovative firms, where we also lag behind the us due to the fragmentation of venture capital within europe. 22 indeed, this is now part of the wider agenda of the european commission of building a capital market union. 23 why reforms are a necessary but not a sufficient condition for growth let me finally say a word on the macroeconomic environment needed for structural reform to succeed. as i explained earlier, reforms produce both expansionary and contractionary forces in the short - term. designing reforms in the right way and creating a productivity - enhancing environment can maximise the former, and let me add : the faster, the better. but while the full benefits of these efforts are still emerging, aggregate demand should counteract the potentially destabilising effect of lower prices and higher real interest rates. this can be done by fiscal policy, when it is available without questioning long - term debt sustainability. and it can be done by monetary policy, even when interest rates have reached for an explanation of this phenomenon in the us context see bernanke, b ( 2005 ), “ productivity ”,