What are structural reforms?

18 October 2017

What are structural reforms?

Structural reforms are essentially measures that change the fabric of an economy, the institutional and regulatory framework in which businesses and people operate. They are designed to ensure the economy is fit and better able to realise its growth potential in a balanced way.

Aiming for balanced growth

Structural reforms work on the supply side of the economy. By tackling obstacles to the efficient – and fair – production of goods and services, they should help increase productivity, investment and employment. This can be done in many ways. For example, the overall business environment can be improved through regulations supporting more flexible labour markets, a simpler tax system or less red tape, making it easier for companies to conduct business and plan for the future. Households, in turn, may benefit from cheaper (and better) products, which also means more money to spend on other goods.

In addition, reforms can be targeted at specific sectors, such as those encouraging innovation in key industries. What is important, however, is that growth is balanced. This means that factors like social fairness and inclusion are also taken into account. Indeed, reforms which increase access to education or lower tax evasion and corruption would help support economic growth while promoting social fairness.

Why does the ECB care?

The ECB, together with the national central banks of the euro area countries, is responsible for the single monetary policy: our mandate is to keep prices stable, i.e. to keep inflation below, but close to, 2% over the medium term. But monetary policy does not operate in a vacuum. Other economic policies contribute to the economic developments which shape monetary policy today. And, in the long run, the benefits to be derived from monetary policy will also depend on other economic policies (including those involving structural reforms), especially when it comes to securing balanced growth. Structural reforms are thus important for future growth in Europe and for strengthening the Economic and Monetary Union. This explains why the ECB is interested in this subject and has carried out research on it.