Economic performance and competition in services in the euro area: policy lessons in times of crisis

Productivity growth in key euro area services sectors has fallen behind that in other countries. Moreover, the downward rigidity of services prices in the euro area is a main source of inflation over the medium term and may hinder necessary adjustment to shocks within the area. As services sectors have many interlinkages with the rest of the economy, the poor performance of these sectors can create negative spill-overs to the euro area economy as a whole.

The disappointing performance is explained by a number of factors, including the fragmentation of the Single Market, regulatory obstacles that limit the pressures of competition and the restrictive start-up conditions. Even though these problems have been addressed to some extent by the Lisbon Strategy for Growth and Jobs, progress has been uneven. Improving the performance of services is particularly important at a time of crisis.

The paper concludes by setting out the main principles of the economic recovery effort, stressing the need not to lose sight of the longer term economic policy objectives.