Remember that in a basic Solow growth model, investment should grow at the growth rate of productivity plus the growth rate of hours worked along the steady state path of the economy. For many European countries, there is scope to increase labour participation rates over time. But given demographic trends, a major part of raising investment demand must be engineering an upward shock to productivity. Besides, internal devaluation can be the backbone of reform in a small, open economy, but not in a larger and more closed one – and even less in the euro area as a whole, where it is by and large a zero-sum game. This is why the composition of reforms also matters – we need reforms that both boost competitiveness and raise productivity. The reforms undertaken so far, despite proceeding at different speeds, have achieved a significant internal devaluation in some euro area countries. Since 2009 Greece has almost entirely reversed the ULC growth it experienced in the pre-crisis period (–19.4% relative to the euro area), while good progress has also been made in Spain (–11.3%), Ireland (–12.3%) and to a lesser extent Portugal (–8.2%). As a result, most of these countries have been able to improve their competitiveness and export. Spain and Portugal, for example, have persistently outperformed the euro area between 2011 and 2013, with both countries gaining more than 10 percentage points of export market shares relative to their competitors.
Inflationary expectations of economic agents continue to be within the target range, which is essential under the conditions of the simultaneous presence of the negative output gap and high foreign prices. The Bank of Albania is fully committed for anchored inflationary expectations in compliance with its inflation target and stands ready to accomplish its mandate, by preventing materialisation of constant pressures on inflation. Following discussions, the Supervisory Council concluded that the monetary conditions remain appropriate for meeting the medium-term inflation target and decided to leave the key interest rate unchanged at 5.25%. BIS central bankers’ speeches  3