The European Central Bank's most senior economist yesterday called for a radical programme of US-style deregulation and liberalisation to bolster the performance of the euro zone and its ailing single currency.
In a speech delivered on his behalf in Brussels, Professor Otmar Issing lashed out at inflexible rules which hamstring Europe's economy and came down firmly in favour of a neo-liberal, almost Thatcherite approach to economic management.
Many analysts blame the perception that European policymakers are dragging their feet over economic reform for the euro's 18-month slide on the foreign exchanges.
Much of his criticism, although he did not say so directly, seemed to be aimed at France where the government has reduced the working week to 35 hours despite opposition from business.
Professor Issing railed against "the adverse impacts of minimum wage and employment protection legislation" and called for a "comprehensive programme of structural reform".
He argued that the role of national governments in running Europe's economy needs to be reduced, taxes lowered and labour markets made more flexible.
Several structural rigidities are, he added, holding Europe back and the regulatory environment is "much less favourable to entrepreneurial activity than in the case of the US".
"The key to improving the growth performance of the euro area lies in the field of structural reform in goods, and particularly, in labour markets." Financial markets in Europe were also not as well equipped as their American counterparts to raise risk capital for new businesses.
Although Prof Issing said US economic performance had been remarkable he also suggested luck may have been a factor behind the record breaking nine-year American expansion.
Weak oil and commodity prices and a strong dollar throughout the 1990s were, he said, a fortuitous combination.
Prof Issing suggested that the European economy could repeat the US economic miracle if policymakers were prepared to undertake the necessary structural reforms.
The ECB's role was to pursue a medium-term monetary policy oriented towards price stability and not take any radical risks.
"Central bank credibility can only be built up over a period of time on the basis of a proven record of stability-orientated policies. Once lost, the reputation of a new central bank such as the ECB, without an established track record of its own, is in no position to take such risks."
Prof Issing's remarks were taken by the markets as a sign that the ECB is in hawkish mood. The euro rallied through 91 cents on the back of his comments .
According to Michael Metcalfe, currency analyst at NatWest GFM, Issing's suggestion that the euro system's monetary policy "would no way be an impediment to faster growth", was widely interpreted as an indication that he regards policy still to be accommodative.
"It looks suspiciously like central-bank speak for 'we think monetary policy is still too easy'," Mr Metcalfe said.
