Constantly upgrading human and physical capital and freeing markets are as important as keeping unit labour costs under control. Portugal’s apparent inability to compete as successfully as Ireland is indeed largely attributable to relatively rigid product and market regulation; insufficiently market-friendly policies; relatively low levels of educational attainment, of R&D expenditure and of information technology use; and not enough wage and price flexibility. These contrasting outcomes clearly demonstrate that joining the euro area does not on its own provide a guarantee of sustainable growth and that the full benefits of monetary union can only be enjoyed if a country adopts appropriate economic structures and policies. Bridging the income gap with the euro area In a Maltese context the pursuit of excellence implicit in the Irish model requires in the first place a change in mindsets and behaviour that would allow us to arrive first at a common diagnosis of the obstacles to faster growth, and then at an equally consensual identification  1  L. Bini-Smaghi, Real and nominal convergence: policy challenges, speech delivered at the Conference on European Economic Integration 2007 – Currency and Competitiveness, Oesterreichische Nationalbank, Vienna, 20 November 2007. BIS Review 143/2007  3  of the means to overcome them. The ability to achieve a social compact was incidentally another no less vital ingredient of the Irish success story.
Failure to understand under which conditions an economy works best in today’s world to make possible concrete improvements in welfare can be very costly. There is, therefore, a need to foster a greater public awareness of developments in our external environment and of the appropriate policy responses. There is also a need for a wider acceptance of some basic truths, for example that it is an illusion to believe that something can be had for nothing, or that governments can fix any problem or grievance. On the contrary, policy makers and opinion shapers alike have a responsibility to explain that the expectation of ever increasing entitlements and higher living standards must be balanced with the recognition that these expectations cannot be satisfied sustainably through the redistribution of national income. In the long run, the expected improvements can only be financed through productivity gains and economic growth. And since nobody owes Malta a living, the responsibility for shaking off our ambivalent attitude to change and for turning globalization from a threat into an opportunity is ours and ours alone. 4  BIS Review 143/2007