Europe's economic reforms are paying off and may help the euro zone close the long-term growth gap with the US, according to Joaquín Almunia, the EU monetary affairs commissioner.

Mr Almunia says Europe is reaping the benefits of painful reforms and he is examining whether the euro zone's anaemic 2 per cent potential growth rate can be upgraded.

"We are starting a recovery and we have a list of structural reforms that are paying off," Mr Almunia said.

Although the reform effort must continue, he said, it was time Europe's politicians told sceptical voters the pain was worthwhile. "We need to communicate these good stories," he said.

Mr Almunia's optimism is supported by a positive economic indicators. Euro zone productivity, long its Achilles heel, increased at an annualised rate of 2 per cent - a sharp increase from the average in the last five years of about 0.7 per cent - in the first two quarters of 2006. Mr Almunia says the EU generated a net seven million jobs between 2000-5, compared with two million in the US.

The euro zone's rebound was underscored yesterday when France reported its economy had expanded by 1.2 per cent in the second quarter - the fastest for more than five years - rather than the 1.1 per cent previously reported. Germany reported a 17,000 fall in seasonally adjusted unemployment this month to 4.43 million, or 10.6 per cent of the workforce, the lowest for more than two years.

Earlier this month, Mr Almunia upgraded his euro zone growth forecast to 2.5 per cent for 2006, the healthiest position since 2000.

Although economists warn that the EU's slow productivity growth and ageing population will hold back growth in the medium term, the recent eurozone growth spurt inspired a rare outbreak of optimism among EU finance ministers at an informal meeting in Helsinki earlier this month.

One minister confirmed that they discussed whether reforms to the labour market, financial markets and welfare systems could lead to an increase in the euro zone's roughly 2 per cent potential growth rate, which is far below the US potential of over 3 per cent.

Mr Almunia said it was possible that the euro zone could grow faster without creating labour market bottlenecks and fuelling inflation.

"I have a feeling some improvements are taking place," he said. "But we are not sure and we need more time to have a good breakdown between the cyclical and structural effects of growth." - (Financial Times service)