This article reviews the role of institutional and structural factors in the economic resilience and long-term growth prospects of the euro area countries... - Publication - ECB

Publication - Increasing resilience and long-term growth: the importance of sound institutions and economic structures for euro area countries and EMU (Economic Bulletin Issue 5, 2016)

Sound institutions and economic structures are essential for the resilience and the long-term prosperity of the euro area. 

However, there remains a significant gap in terms of the quality of national institutions and the efficiency of economic structures between most euro area countries and the best performing members of the Organisation for Economic Co-operation and Development (OECD). After having increased in the period 2011-13, the momentum of structural reforms has weakened in recent years in euro area countries, despite the fact that significant reform effort is still needed to strengthen resilience and ensure long-term growth. 

This article recalls the main benefits of sound institutions for Economic and Monetary Union (EMU), provides evidence for gaps between euro area countries and best performers in terms of institutional quality and labour and product market functioning, and considers the national versus the common perspective in shaping a stronger and more resilient euro area. It shows that in terms of quality of institutions as well as for labour and product market functioning euro area counties are still distant from international best-performers. 

The article reports evidence that reducing the gap to the frontier would increase productivity and long-term growth as well as ensure more resilience to adverse shocks. The latter would be important not only for the countries themselves, but also for improving the smooth functioning of EMU. It is therefore of utmost importance that decisive institutional and structural reforms are carried out to foster employment and investment growth, and increase potential output in all euro area countries.

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