outlook. although there are few solvency concerns facing the industry, there is no room for complacency in this environment. insurers will have to be mindful of having sufficient capital buffers in place. the role of insurance companies and pension funds for financial stability let me take a step back and consider the role of insurance companies and pension funds in financial stability. in the continuing debate about categories of financial institutions, a distinction is sometimes made between “ systemically important ” institutions and “ large and interconnected but not systemically important ” institutions. in my view, large insurance companies and pension funds belong in the first category. they play an important role for the stability of the financial system. traditionally, insurers and pension funds have not generally been seen as being a significant potential source of systemic risk. the insurance and pension fund sectors are mostly regarded as relatively stable segments of the financial system. they are not seen as interlinked to the same extent as banks are, for example, in interbank markets and payment systems. but the interaction between insurers and pension funds, financial markets, banks and other financial intermediaries has been growing considerably over time. today, therefore, this traditional view needs to be challenged. i would like to mention three main reasons why insurance companies and pension funds can be important for systemic financial stability : their size, their interconnectedness and the economic function of insurance. let me talk first about size. insurers and pension funds are very large investors in financial markets. the growing role of fully - funded pension systems worldwide will increase this trend. collectively within the euro area, their investment amounted to €6 trillion at the end june 2009. most of the time, given the typically long - term investment horizons of insurers and pension funds, they are a source of stability for financial markets. however, due to the sheer size of their investment portfolios, reallocations of funds or the unwinding of positions by these institutions have the potential to move markets. in extreme cases, that could put at risk financial stability by triggering large swings in asset prices. second, interconnectedness : insurers and pension funds have strong and important links with banks and with other financial institutions. euro area insurance companies and pension funds hold about €435 billion of debt securities issued by euro area banks. this represents about 10 % of the total amount outstanding of debt securities issued by euro area banks. from a financial stability perspective, we need to

##s are an important driver of product market reforms. 13 correct sequencing of reforms can also help – product market reforms can facilitate the subsequent implementation of labour market reforms. by eliminating barriers to entry, procompetition product market reforms can eliminate inefficiencies, in turn promoting higher economic activity and employment, and thereby offsetting possible short - term costs of later labour market reforms. but what about monetary policy? as it turns out, the literature says little about how monetary policy drives the reform process. one view is that an accommodative monetary policy stance may increase the room for manoeuvre of governments, allowing measures to offset some of the short - term costs of reforms. 14 but there are certainly some commentators who at present believe that the ecb ’ s unconventional measures are stifling incentives for reform. to answer this question, preliminary internal research at the ecb investigates the drivers of structural reform in 40 oecd countries over the past three decades. this research supports previous findings in the literature on the drivers of reform. on monetary policy, it finds that lower interest rates, if at all, tend to support rather than hinder the implementation of reforms. we also see this confirmed by anecdotal evidence in some larger euro area countries, which recently implemented some important labour market reforms. it seems, then, that we should put more weight on the former view. by acting in accordance with our mandate, namely to support activity to bring inflation back in line with our medium - term objective, the ecb is in fact also providing space for euro area governments to carry out the necessary structural reforms. it is a window of opportunity they should seize. conclusion let me conclude. the euro area faces a significant demographic challenge in the coming decades. reversing the decline in productivity growth and improving labour market outcomes are both required to meet 6 / 7 bis central bankers'speeches this challenge. without concerted effort on structural reforms, per capita income growth in the euro area is likely to stagnate, and may even decline. the welfare benefits of structural reforms extend beyond just protecting income per capita. the distributional impacts of lower unemployment and higher participation are positive. increasing potential output growth provides both monetary and fiscal policy more space to operate in. by breaking down barriers, reforms allow the full benefits of the single market to be realised, increasing economic cohesion and strengthening the monetary union. the ecb ’ s current monetary policy settings are designed to support activity to bring inflation