But even so, striving towards sound public finances, combined with the Eurosystem’s stability-oriented monetary policy, should help to create favourable macroeconomic conditions such as Europe has not enjoyed in the past. However, the euro area economies will only achieve higher growth rates and cut their chronically high unemployment rates in the long run if the necessary structural reforms are enacted.
Not least due to the constraints imposed by the single currency, there now appears to be a growing recognition among policymakers in Europe that over-regulation of labour markets, perverse incentives created by some elements of the welfare systems and rigidities throughout the economy urgently need to be addressed.