Largely unnoticed by markets riveted by the drama of the day, more and more countries are successfully implementing complex, politically treacherous reforms needed to raise their long-term economic growth rates.

Trying to change the habits of decades to fend off a crisis is a thankless task. Ministers are unlikely to be in office long enough to reap the fruits of their work, and any proposals to postpone the retirement age or make it easier to hire and fire risk bringing disgruntled voters out on to the street.

Just ask Greece, which faced demands on Monday from international lenders that it shrink its public sector in return for emergency aid. Or Ireland and Portugal, where governments have been kicked out of office after bowing to creditors' demands for austerity and changes to the economic fabric.

With little fiscal and monetary room for maneuver, governments under pressure from markets have an added incentive to look at the nuts and bolts of how their economies work to try to stimulate growth.

But change in many cases was under way before the global financial crisis. A prime example is Germany's successful drive to free up its job market, part of a strategy for restoring competitiveness eroded by joining the euro zone at a high real exchange rate.

Through increased flexibility in pay and working hours, manufacturers were able to retain skilled staff who would otherwise have been laid off and so could respond quickly when demand from China and other emerging markets revived.

There's more appetite for reform today than there was 10 years ago. That's for sure, said Romain Duval, head of the structural surveillance division at the Organization for Economic Cooperation and Development, a Paris-based grouping of 34 industrial democracies.

Whether that can translate into tough reforms being implemented is a different issue. Obviously we're always disappointed that governments aren't doing more. But I'd be more optimistic today about the prospect for structural reform than I would have been 10 years ago, Duval added.


Tantalizingly, in their gloom over the euro's prospects, markets might not have priced in the advances that have been made on the structural reform front.

Thomas Stolper, chief foreign exchange strategist at Goldman Sachs in London, twinned the progress with the efforts that euro zone members are making to strengthen the foundations of European Monetary Union.

The European Financial Stability Facility, a rescue fund currently being approved by parliaments in the 17-nation bloc, will help fill an institutional gap that has persisted during the first 11 years of the euro, Stolper said in a recent note.

Moreover, many peripheral countries have implemented in a very short period of time structural reform packages that have been at the top of the wish list of most economists for many years.

We continue to believe that at some stage the markets will begin to acknowledge these reforms. This, in turn, should lead to a permanent reduction of the fiscal risk premium from very high levels currently, Stolper wrote.

The OECD reckons an ambitious package of measures to overhaul pensions as well as labor and product markets could raise the group's level of gross domestic product by 10 percent over a 10-year horizon.

Adopting best practices in health and education could save cash-strapped governments 2 percent and 1 percent of GDP respectively.


Changes that are encouraging OECD researchers include a rise in the retirement age. Italy last Wednesday became the latest country to make such a move, with the pensionable age for women in the private sector gradually set to rise to 65 from 60.

Governments are doing a lot of things, said Monika Queisser, head of the OECD's social policy division. Some countries haven't been doing enough and some are doing things too slowly, but the willingness is there.

In the area of employment policy, 22 OECD members -- not just Germany -- have subsidized cuts in working hours during the crisis. Companies get to retain skilled workers, while aggregate demand in the economy is supported.

Our preliminary analysis suggests the measures have been pretty effective. They have certainly contributed to reducing job losses, said Stefano Scarpetta, the OECD's deputy director of employment, labor and social affairs.

He said a deep crisis typically has a cleansing effect in accelerating structural changes that would eventually happen in any case. The restructuring of the U.S. car industry in the aftermath of the 2008 financial meltdown is a case in point.

Still, governments have responded more promptly than in the past, Scarpetta said. Several have passed legislation to annualize hours worked, giving firms the flexibility to adjust production schedules to changes in demand, while 16 OECD members have poured more money into apprenticeship schemes.

Did they solve the problem? Of course not. We need a strong recovery to be able to absorb unemployment. But our view is that the initial response has been pretty strong and decisive and has certainly contributed to cushioning the social cost of the crisis, he said.

(Reporting by Alan Wheatley; Editing by Ruth Pitchford)