Jürgen Stark: Structural reforms in Europe Bullet points by Mr Jürgen Stark, Member of the Executive Board of the European Central Bank, for a speech delivered at the OECD-IMF Conference on Structural Reforms in Europe, Paris, 17 March 2008. * * * •  It is well established that the lack of structural reforms is the main factor behind the relatively disappointing economic performance of some euro area countries over the last few decades. Despite the acceleration in economic growth of the last three years, the gap in GDP per capita between the euro area and the United States remains substantial, reflecting lower levels of both productivity and labour utilisation. Overcoming these constraints to growth is essential in the current environment, where the European economy is facing a number of important challenges, including rapid technological change, accelerating globalisation and ageing populations. •  The EMU is a catalyst for structural reforms in Europe. Within the monetary union, regional monetary and exchange rate policies are no longer viable options. Flexible and integrated labour and product markets are therefore a prerequisite for the smooth functioning of the euro area, including countries’ ability to absorb shocks and fully benefit from EMU. This is why a price-stability orientated monetary environment in principle provides more, not fewer, incentives for national governments to implement structural reforms. •  The performance of the euro area policy framework, however, has been mixed.
But if one compares it with the rigorous institutional framework that encompasses monetary policy, it is difficult to rid oneself of the thought that the “arm" which would mark the distance from present party politics would be on the short side. I believe that there are some worrying signs here. It appears as though there is a tendency, from a political point of view, to see stabilisation policy, or more precisely the repo rate, as the main solution to the problems we are currently seeing in the Swedish labour market. As I see it, there is an evident risk that this type of view would also colour the discretionary fiscal policy with an increased stabilisation policy responsibility. However, before I round off, allow me to say that it is possible that situations might arise that are so serious from a stabilisation policy point of view that discretionary fiscal policy measures could be warranted. Here I am mainly thinking of situations with a severe fall in demand in the nature of a depression, where both fiscal policy and monetary policy would be forced to make substantial departures from the normal principles. These would be extremely unusual circumstances, however, and do not provide any argument for setting up a permanent stabilisation policy committee. So, my answer to the question on whether monetary and fiscal policy should be developed is yes, but not in the direction LO appears to have in mind.