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What do we need to do in the years ahead?
At the same time, we’re not done yet. The euro area needs a comprehensive growth strategy. We need strong and coherent policies in all relevant policy areas. Sound monetary and fiscal policy, high-quality investments and ambitious structural reforms. And we need to connect these different policy strands.
Monetary policy
Let me start with the support provided by the ECB’s monetary policy. Like many other central banks, including the Bank of Japan, the ECB is confronted with the zero lower bound. In response, and in the context of a weak euro area economy, it has resorted to unconventional measures. These days, monetary policy – and quantitative easing in particular – is a topic of lively debate.
One point to make is that monetary measures will only be effective in combination with sound policies in other areas. It doesn't take politicians off the hook. We want the liquidity provided by the ECB to finance productive investments in the real economy instead of creating bubbles. This means that we have to take the right structural measures as well. Restoring our banks to health, as I mentioned earlier, has been a key element of this. And going forward, we need further measures to boost attractive investment opportunities.
Fiscal policy
Also, besides monetary policy, we need sound fiscal policies. From the moment the crisis started, the sustainability of public finances was tackled with great urgency. We have pursued a strategy of stronger fiscal discipline and budgetary consolidation. And with an eye to our aging continent and keeping our social security system future-proof, healthy public finances remain a top priority.
In this context, our set of common budgetary rules, the so-called Stability and Growth Pact, is key. The Stability and Growth Pact is a rule-based framework for the coordination of national fiscal policies. It imposes fiscal discipline, with limits on budget deficits and debt. It functions as an anchor of confidence. Confidence among euro countries and confidence for the financial markets. And all countries – large and small – should abide by these rules.
Investment
The third element of our coherent policy mix is investment. Investment levels across Europe are too low and must be raised. In November, the new European Commission presented a 315 billion euro private and public investment programme, equivalent to about 45 trillion yen. This plan has three pillars.
It mobilizes capital for investment through a European Fund for Strategic Investments. It brings together viable investment projects and private and public financing. And it contains measures to strengthen our investment climate. This includes better regulation, the development of a capital markets union and completion of the internal market in Europe. In particular, the digital agenda and energy grids offer opportunities for new investments.
So we need to increase investment in Europe, and most of the increase has to come from private sources. To achieve this we need to attract private investors. Companies’ confidence in our growth potential will increase if we vigorously implement ambitious structural reforms, at both the European and national level.
Structural reforms
This brings me to the final policy strand. Structural reform is our key challenge. No stimulus can replace the need to make our economies more competitive and fit for the 21st century. Years of strong credit-fuelled growth have masked some of our structural weaknesses. And a number of serious challenges lie ahead of us. Such as ageing and globalisation.
Japan is facing very similar challenges. Your government’s three arrow strategy reflects the fact that monetary, fiscal and structural policies should go hand in hand. The government is committed to structural reform, but is finding that this is no easy task. It’s very much the same in Europe.
To address weaknesses in our European economies, we need structural reforms. Well designed, well timed. We need to improve our labour markets, lower the tax wedge on labour and further improve the skills of our workforce. We need to make our product markets more flexible, modernise our welfare system and improve the quality of our research and innovation.
That’s why we need to focus on what we’ve already achieved and on the potential benefits that still lie ahead.
In its ‘Going for Growth’ report, the OECD presents the achievements of reforms in Europe over the last two years. It shows that Greece, Italy and Spain have reduced regulatory barriers to competition. Ireland and Slovakia have strengthened Research & Development and innovation incentives. Countries like France, Italy, the Netherlands and Portugal have reduced problems in their labour markets. And so I could continue.