Paulson: Economic Trends and Opportunities for Philadelphia

Thank you, Madame Ambassador, for the introduction and the opportunity to speak today. My topic is the implications of deregulation for monetary policy, an appropriate one for this setting.1 Greece's recovery from the crisis that began in 2009 was only possible after the Greek people implemented substantial and painful reforms, including alleviating suffocating over-regulation in many sectors. In addition to the other reforms embraced by Greece, deregulation freed businesses to compete domestically and internationally, and promoted individuals' access to the economy. The range of reforms has included liberalizing product and service markets, easing licensing and administrative burdens, opening previously restricted professions, and increasing labor market flexibility. The government liberalized electricity and gas utilities; privatized airports, ports, and utilities; and reformed bankruptcy procedures and other business laws. While it is challenging to quantify how these deregulatory actions have affected the economy, there is little doubt that these reforms have supported a remarkable return to economic growth and higher living standards. Macroeconomic stability has returned to Greece. Unemployment has fallen to its lowest level since the Global Financial Crisis, and investment and exports have rebounded. Product and labor market reforms helped restore competitiveness, reduce unit labor costs, and encourage firm entry. By easing the ability of supply to respond to prices, these reforms have improved the transmission of monetary policy. While monetary policy is set by the ECB, its transmission varies in part with how national governments manage their economies. Long-term Greek borrowing rates narrowed their spread to Germany's, below 1 percent, compared with 6 percent a de FED'S MIRAN: DEREGULATION SHOULD PUT DOWNWARD PRESSURE ON PRICES, ANOTHER REASON FOR U.S. CENTRAL BANK TO CUT INTEREST RATES Fed's Miran: If central banks don't accommodate the impact of deregulation, it makes policy too tight, with a needless damper on growth.

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