Demand policies remain crucial to close a still-large output gap and to secure a strong cyclical recovery. And it is possible that some issues that are currently considered to be structural, such a high longterm unemployment, could reverse in a stronger demand environment. That is to say, if hysteresis operates in the downswing, it may also reverse in the upswing.
Yet according to all estimates potential growth in the euro area is weak, and has been on a declining trend for at least 15 years. A strong and sustained recovery cannot therefore come from demand policies alone. It has to entail reforms that improve the allocative efficiency of the economy and unlock its supply capacity.