1  See ECB, “Progress with structural reforms across the euro area and their possible impacts”, Economic Bulletin, Issue 2 / 2015. BIS central bankers’ speeches  1  However, since 2013, very low financing costs for sovereigns and rising share prices have eased the pressure to implement more difficult policies 2. By definition, for structural policies to be most effective, a long-term commitment, continuous implementation and strong reform ownership are needed. This is the only way to permanently change expectations and growth prospects. This leads me to our second, more concrete, question: Which structural reforms are still needed to support stronger and sustainable growth? To start with, let me stress that all euro area countries, albeit to different degrees, still need to implement structural reforms. There are a number of credible reforms that are able to increase permanently total factor productivity; to affect confidence; and to help reduce uncertainty and increase investment and sustainable demand. In particular, for the euro area I see the need to forcefully work on: 1.  reducing red tape – by easing licensing procedures and facilitating access to credit by viable firms;  2.  improving the judicial systems – including the effectiveness of insolvency regimes;  3.  increasing the efficiency of the public administration and tax systems;  4.  reducing entry barriers in sectors sheltered from competition; and  5.  reducing hiring costs and skill mismatch. These reforms would unlock immediately “hidden” demand, increase economic resilience and facilitate the working of monetary policy.
Among these reforms I believe that particular attention needs to be given to all legal, administrative and bureaucratic impediments that can lead to an increase of the overall costs for debt workouts, make the distinction between viable and non-viable firms more difficult, and hamper firms’ exit from and entry to markets as well as investment. In concrete terms, this means improving the efficiency of insolvency regimes. In corporate debt restructuring, experience to date shows that an effective insolvency regime is critical to facilitate the early rescue of viable firms and the speedy exit of non-viable ones. IMF analysis also shows that weak debt enforcement and ineffective insolvency frameworks tend to lower the recovery values of problem loans 3. Our internal analysis finds that in order to be able to cope with high private debt ratios and to deleverage reasonably quickly, the strength of the insolvency framework is important. Also, recent analysis from the European Commission found evidence that in the presence of a high stock of private debt, the quality of insolvency frameworks is important for financial stability and for spurring entrepreneurship and thereby mitigating the impact of deleveraging on growth. In particular, it was found that a good insolvency framework is associated with speedier adjustment of non-performing loan ratios. 4  2  See OECD, “Economic Policy Reforms 2015: Going for Growth”, 2015.