I do not share this view. Price stability, defined as the inflation rate being below but close to 2%, is the anchor of the adjustment process and it is our duty to deliver it within our mandate. Very low government bond yields can indeed weaken the incentives for sound fiscal policies, and this is why we need strong and credible fiscal rules. But the suffering of young and longterm unemployed in our countries should suffice as an incentive to reform. Conclusion To conclude, the main lesson of the crisis is that a major financial shock leaves a set of initial conditions that can only be worked through by policies on both the supply and demand sides of the economy – that is, structural reforms and monetary and fiscal support. Key to the effectiveness of those reforms, however, is that they are fast – to avoid drawing out the disinflationary process – and that they focus on productivity as well as competitiveness. Today the reform agenda facing European countries is largely about productivity, and this means that pursuing reforms aggressively is less likely to have negative short-term effects. Many of the reforms that lead to downward price pressures and higher real interest rates have already been done, and their effects are working their way through the economy now. The remaining reforms are more about boosting investment demand and productivity and so raising growth today. Thus, it makes little sense for European countries to stop reforming now.
14  World Bank (2013), Doing Business 2014: Understanding Regulations for Small and Medium-Size Enterprises. 15  Foster, N., Poschl, J., Rincon-Aznar, A., Stehrer, R., Vecchi, M. and Venturini, F. (2013), “Reducing productivity and efficiency gaps: The role of knowledge assets, absorptive capacity and institutions”, in European Competitiveness Report, DG Enterprise and Industry, European Commission. 16  See for example Gomez-Salvador, R., A. Musso, M. Stocker and J. Turunen (2006), “Labour productivity developments in the euro area”, ECB Occasional Paper No. 53, October 2006. 17  Bourlés, R., Cette G., Lopez J., Mairesse, J. and Nicoletti, G. (2012), “Do product market regulations in upstream sectors curb productivity growth? Panel data evidence for OECD countries”, Review of Economics and Statistics, MIT Press, vol. 95(5). 6  BIS central bankers’ speeches  to have access to adequate initial and vocational training – something which on the whole US firms seem to have been able to do better than European ones.18 As part of this process, reallocation of resources is both unavoidable – as firms need to restructure – and essential – to concentrate resources where they are most productive. There are however important differences in the extent to which capital and labour flow to innovative firms. For example, researchers at the OECD have found that a 10% increase in the patent stock is associated with an increase in the typical firm’s capital stock of about 3% in Sweden and the United States; 1.5% in the United Kingdom and Germany; and a 0.5% in Italy and Spain.