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Market Reforms at Work in Italy, Spain, Portugal and Greece

European Commission (2014) “Market Reforms at Work in Italy, Spain, Portugal and Greece“, European Economy 5|2014, Economic and Financial Affairs, September.


As part of the response to the crisis, a significant number of market reforms were introduced to boost economic activity and competitiveness. The intense reform effort appears to be showing early signs of effectiveness in some of Europe’s most vulnerable countries.

Insufficient reform efforts in the years before the crisis has hampered the ability of many countries to adjust and made their current need for reforms all the more urgent. Vulnerable countries such as Italy, Spain, Portugal and Greece were more exposed because existing rigidities in product markets added to the difficulties their economies encountered when hit by the financial crisis.

Structural reforms improve an economy’s flexibility and increase the efficiency of how and where productive factors are used. However, for reforms to deliver their full impact, the channels through which their effects are transmitted throughout the economy need to work properly. Well-functioning transmission mechanisms require that firms can enter and grow unimpeded and that inefficient ones can restructure or exit without hurdles; that prices and mark-ups are flexible enough to properly act as signalling devices; and that reallocation of resources takes place towards the most productive uses and activities. If the chain of transmission is hampered, the expected impact of a reform will not materialise.

This report focuses on estimating the potential impact of a selection of market reforms and provides first signs that suggests a positive response in the four countries. Cut off dates for various parts of the study vary depending on the availability of data but in some cases information has been taken into account as recently as April 2014.

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