An assessment of structural reforms in the stressed euro area countries and their relevance for growth and for EMU

These reforms have the potential to raise the growth potential in the respective countries and to improve the functioning of EMU. In the context of the optimum currency area debate it is argued that structural reforms have reduced the heterogeneity between euro area countries in terms of market rigidities. Moreover, wage and price flexibility – which are needed to better adjust to exogenous economic shocks – will be enhanced. In fact, first signs can be detected that wage flexibility has already increased in southern euro area countries.