This should not come as a surprise, since it is much easier to sustain a high level of employment protection in an industry if competitors are kept out of its market. Therefore, amendments to employment protection legislation should be considered in relation to the implementation of product market reforms to promote competition. Fostering, promoting competition in product markets will facilitate the implementation of labour market reforms. These arguments suggest that the envisaged policy actions in line with the Lisbon strategy aimed at improving the functioning of labour and product markets – and the review of the institutions that determine their organisation which this reform agenda entails – can be expected to have mutually reinforcing beneficial effects on the performance of the economy. The improvement in labour utilisation in the euro area witnessed in recent years partly reflects the favourable effects of past labour market reforms. However, when looking at the levels of unemployment and labour force participation rates, it is clear that, despite the progress made, further improvements on both of these labour market fronts are possible and urgently needed. 2  See, inter alia, Nicoletti et al. (2000) and Nickell and Nunziata (2001). 3  See Bassanini and Duval (2006). BIS Review 43/2007  5  IV.2. Values, preferences and economic culture  Institutions that are inappropriately designed are thus at least partly responsible for the unsatisfactory performance of the European economy.
But since there is no unique “European Social Model”, I will then explore how differences in economic institutions, reflecting different cultural values and social models, may explain the divergence in the growth performance of European countries. Finally, I will focus on the other important dimension of  BIS Review 43/2007  1  economic performance and a central policy objective: price stability. I will demonstrate the crucial role of the institutional frameworks for central banking and fiscal policy implementation in ensuring the preservation of price stability and the sustainability of economic growth. II. Economic performance, markets, institutions and values: a simple conceptual framework  Before addressing the issues I have raised, it will be useful to define the various concepts more precisely and to specify a simple framework that describes their likely relationships and potential effects. Needless to say, the aim is not to formulate a comprehensive theory but to sketch out a conceptual structure that can help organise our thinking and analysis. This is illustrated in slide 3. The economic performance of a country or economic area will be measured by its trend rate of economic growth and its ability to preserve price stability. These indicators of macroeconomic performance are the aggregate outcome of market mechanisms and forces and of the effects of economic and monetary policies. Economic institutions, as well as other types of institutions (e.g. legal) underpin the functioning of product, labour capital and money markets.