Proceedings from the ECFIN Workshop "The budgetary implications of structural reforms" - Brussels, 2 December 2005

Figure 2. Strength of anti-competitive product market regulation, 1998 and 2003

Note : The indicator of regulation is measured on a scale from 0 (most liberal) to 6 (most restrictive) and is described
in Conway et al. (2005).

Source : OECD.

Recent episodes of conjunctural weakness in the EU, most prominently in the euro area,
also point to a need for structural reform. Indeed, the euro area has exhibited less resilience than a
number of non-euro-area countries in the face of a series of common shocks, which since the turn
of the century have included the bursting of the IT bubble, corporate governance scandals,
terrorist attacks and higher oil prices. It is obviously difficult to standardise across countries, but,
nonetheless, it is hard to argue that differences in exposure to shocks or in macroeconomic policy
stances between, on the one hand, the euro area and, on the other hand, Australia, Canada, New
Zealand and the United Kingdom can account for the divergence in output gaps across the two
country groups (Figure 3). These differences in resilience - which are also visible inside the euro
area - probably reflect both different capacities to adjust to shocks and different responses to
changes in monetary policy - i.e. differences in the strength of the monetary policy transmission
mechanism.⁶⁵ Again, such differences are likely to reflect structural policy settings.⁶⁶

⁶⁵.Recent work suggests that the monetary policy transmission mechanism in the euro area relies more heavily on effects via business investment,
whereas in the United States effects via private consumption also contribute importantly (e.g. Angeloni et al., 2003).

⁶⁶.Catte et al. (2004) emphasise the role of structural policies affecting housing and mortgage markets in this regard.

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