The paper examines the causes of high regional unemployment in Germany, Spain and Italy, and identifies a number of areas where policy action is needed. Lower unemployment rates will not only depend on stability-oriented macroeconomic policies and a sufficiently flexible labour market, but also on moves towards

• more decentralised wage bargaining systems;
• efforts to reduce regions’ long-term dependency on fiscal transfers;
• changes in tax-benefit systems to improve incentives to create and take up jobs;
• efficient public expenditure on physical and human capital and
• action to reduce obstacles to labour mobility.