Jean-Claude Trichet: Structural reforms for the European economy Speech by Mr Jean-Claude Trichet, President of the European Central Bank, at the Forum ABC, Madrid, 15 February 2008. *  *  *  Ladies and gentlemen, I would first like to thank very warmly the organisers for inviting me to speak here today in the context of the series of conferences organised by the “Forum ABC”. In my intervention I would like to share with you my views on “Structural reforms for the European economy” and on the importance such reforms have for job creation and productivity growth. This is indeed a major policy issue and, I believe, a topic of great interest to everyone here too. After all, high employment and high productivity levels are the key preconditions for a high level of real income and living standards in our societies. If we look back over the last decade, employment growth has been strong in the euro area and even more so in Spain. However, over the same period, labour productivity growth decelerated significantly in the euro area and in Spain in particular. A key challenge therefore is how to simultaneously achieve solid employment and productivity growth. It is well-established in the economic literature that structural reforms and institutions are among the main factors that explain the different performance of per capita income growth across countries over the medium to long term.
14  See P. Hartmann, F. Heider, E. Papaioannou and M. Lo Duca (2007), “The role of financial markets and innovation in productivity and growth in Europe”, ECB Occasional Paper Series, September, as well as ECB (2007) “Financial integration in Europe”, Frankfurt a.M: ECB. 15  Some authors have calculated that if the average size of capital markets in the European Union was bigger in the United States for instance, it is around 450% of GDP instead of 220% as in the European Union (based on an overall indicator measuring total financing in the economy by aggregating bank credit to the private sector, stock market capitalisation and the outstanding amount of domestic debt securities issued by the private sector) - then annual GDP per capita growth in the European Union could be positively influenced (see G. Favara (2006), “An empirical reassessment of the relationship between finance and growth”, mimeo). BIS Review 18/2008  5  2005, and telephone prices charged by the former monopolies for national and international calls for instance, fell by more than 40% on average in Europe between 2000 and 2006. This supported the purchasing power of consumers, who have now more of their income available to spend on goods and services. Supporting an innovative environment To fully exploit productivity potential, the product market reforms I have just mentioned need to be accompanied by policies that support innovation and technological changes.