3  The seminal paper on this issue began is Blanchard, O., and L. Summers (1986), “Hysteresis and the European unemployment problem”, NBER Macroeconomics Annual 1986, Volume 1. 4  For more details see speech by Draghi, M. (2014), “Unemployment in the euro area”, annual central bank symposium in Jackson Hole, 22 August 2014. 5  For details on pre-crisis productivity developments see European Commission (2013), “Catching-up processes in the euro area”, in Quarterly Report on the Euro Area, Vol. 12, Issue 1, March 2013. 2  BIS central bankers’ speeches  What type of supply? This relationship between supply and demand, however, rests on the assumption that structural reforms will have mainly positive short-term effects. But this needs some more qualification. Though the long-term benefits of structural reforms are by and large undisputed6, there are different views about the short-term effects in the academic literature. Reforms can be shown to produce two, opposing sets of forces in the short-term. One is contractionary, as reforms lead to lower prices and higher real interest rates. If monetary policy is at the zero lower bound and unable to respond and fiscal space has been exhausted, higher real rates cause the private sector to postpone consumption and investment decisions and GDP to contract.7 The other set of forces is expansionary. As reforms raise expectations of permanent income, firms bring forward investment and households bring forward consumption. Moreover, for households the prospect of higher potential growth increases the likelihood of future employment, thus reducing precautionary savings and boosting consumption today.
They have other issues that frustrate them, such as why average wages are still two to three times lower than those in Germany and many other countries after 25 years of transition, when at the same time many products carrying the “Made in Germany” label are assembled on our territory. Or why so many companies pay such large dividends to owners abroad and we are unable to be attractive enough for foreign capital to be reinvested on our soil. And this is us – we have a tendency not to accept that there are always trade-offs, there are no free lunches, that for every plus there is a minus. We want everything at the same time, sometimes even mutually inconsistent things. But that is another matter. There is one area, however, where the Czech population has been very conservative over a very long period of time, and that is the area of euro adoption. In the Eurobarometer – a poll you all know – the Czech Republic remains the country where by far the largest share of the population has a negative view towards adopting the euro out of all the non-Eurozone countries. Roughly two thirds of Czechs are against the euro. This is a higher figure than in Sweden, which rejected the euro in a referendum in 2003. Well, public opinion is not as anti-euro as in the UK, where at some point the euro was only “slightly more popular than ebola”, as I read in one British newspaper.