trends and cycles in the euro area : how much heterogeneity and should we worry about it? ”, ecb working paper no 595. from : ludwig erhard, “ die ziele des gesetzes gegen wettbewerbsbeschrankungen ” ( speech to the german bundestag on 24 march 1955 ), in ludwig erhard, deutsche wirtschaftspolitik, dusseldorf, 1962. 3. adjustment processes in the euro area economic integration is a clear prerequisite for the smooth functioning of the euro area. all the more because the euro area is continuously confronted with adverse events or shocks, for instance in the fields of global competition or energy price developments. in addition, individual euro area economies or regions may be affected by specific sectoral developments, for example in real estate markets. it is therefore important to make sure that adjustment mechanisms function efficiently. why is an efficient adjustment mechanism important in the euro area? as national monetary and exchange rate policies are no longer available options, it is important to make sure that other mechanisms of adjustment to shocks function properly within the euro area. this is needed to avoid a situation where a country or a region, after suffering a specific or asymmetric shock, enters either into a period of protracted low growth and high unemployment, or in a long period of overheating. there are many factors that can improve the resilience of the euro area economies to adverse shocks. but before addressing this issue, let me stress that the ecb ’ s single monetary policy contributes to the proper functioning of adjustment mechanisms within the euro area by ensuring price stability, i. e. by anchoring price stability in economic agents ’ decisions. i believe that this is a very important contribution. in other words, the social partners when agreeing on wage increases, and also national authorities when preparing their budgets or designing policies in their fields of responsibility, should be, and, as a matter of fact, are fully confident that we at the ecb and in the eurosystem will deliver price stability. on this issue, ludwig erhard said that “ it is a great mistake for a people, or a state, to believe that it can introduce and pursue an inflationary policy, yet insure itself against the results. this is to try to lift oneself by one ’ s own bootlaces. on the contrary, it is essential to concentrate all efforts to prevent an inflation [ … ] ”. 11 and let

internalising the repercussions of wage settlements on competitiveness and thus employment at their company and in their industry, sector or region. 12 sufficient wage differentiation would improve employment opportunities for less skilled workers and in regions or sectors with high unemployment. in this respect, excessive wage regulations are undermining job creation, in particular for young and less qualified workers as well as for all those who face problems entering the labour market. allow me to mention also that corporate governance should ensure that executive board remuneration is properly set, in line with the performance of the board members and conditions at the respective company. as seen in the german case, the period of adjustment can be painful, but reforms and unit labour cost moderation is paying off and contribute to robust growth and impressive economic records, like the one currently observed in germany. i remember some observers arguing that much stronger wage increases were needed for higher growth. the recent evidence does not confirm this view. as seen in germany since last year, past moderation of unit labour costs has very significantly contributed to declining unemployment and higher growth. the competitiveness gained by the german economy was an important prerequisite for sustainable job creation and sound and long - lasting growth. the proper functioning of adjustments through labour markets also requires the completion of the single market. in particular, all existing barriers to labour mobility within the euro area – in particular as regards slovenians – must be removed. as to product markets, let me stress that it is essential that the single market must be fully completed, particularly in services and network industries. a deeper integration of markets would stimulate price flexibility by fostering competition and open product markets. greater cross - border competition and the integration of markets across the euro area countries would contribute to lower prices. it could also enhance the adjustment processes in the individual countries in the event of asymmetric shocks or differing cyclical developments. 13 another important market - based mechanism in a monetary union that can help to attenuate the impact of shocks in a country or region is well - integrated financial markets and readily available opportunities for portfolio diversification. well - integrated financial markets and diversified portfolios reduce the dependence of firms ’ and households ’ saving and spending decisions on economic and financial developments in a specific country, region or sector. this mechanism is known as the “ credit and risksharing channels ”. in essence, it means that consumption does not need to follow movements in regional output, first because consumers can borrow abroad and second because their financial wealth is less