A credible commitment by euro area governments to implement structural reforms could already create a permanent upward shift in expectations of future growth, improve labour market performance, and as a welcome side-effect, improve the health of public finances over the medium-term. And to a certain extent, this is what we are seeing in the euro area today.
As regards labour market reforms, several euro area countries have moved towards a negotiating framework for wages and working conditions based more on firm-level agreements. This should enhance competitiveness by promoting a closer link between wages and productivity and, at the same time, allow firms to rapidly adjust their internal organisation of labour and production in response to changing economic conditions.