Abstract Recent empirical evidence has highlighted how the export patterns of multi-product firms dominate world trade flows, and how these multi-product firms respond to different economic conditions across export markets by varying the number of products they export. In this paper, we further analyze the effects of those export market conditions on the relative export sales of those goods: we refer to this as the firm's product mix choice. We build a theoretical model of multi-product firms that highlights how market size and geography (the market sizes of and bilateral economic distances to trading partners) affects both a firm's exported product range and its exported product mix across market destinations. We show how tougher competition in an export market -associated with a downward shift in the distribution of markups across all products sold in the market -induces a firm to skew its export sales towards its best performing products. We find very strong confirmation of this competitive effect for French exporters across export market destinations. Our theoretical model shows how this effect of export market c o m p e t i t i o n o n a f i r m ' s p r o d u c t m i x t h e n t r a n s l a t e s i n t o d i f f e r e n c e s i n m e a s u r e d f i r m productivity. Thus, a firm operating a given technology will produce relatively more output per worker when it exports to markets with tougher competition. This productivity gain is further compounded by the effect of competition on the mix of exported products. ____________________________ *We thank Steve Redding for helpful comments and suggestions. Ottaviano thanks MIUR and the European Commission for financial support. Melitz thanks the Sloan Foundation for financial support.

Abstract In this paper we examine the sustainability of euro area public finances against the backdrop of population ageing. We critically assess the widely used projections of the Working Group on Ageing Populations (AWG) of the EU's Economic Policy Committee and argue that ageing costs may be higher than projected in the AWG reference scenario. Taking into account adjusted headline estimates for ageing costs, largely based upon the sensitivity analysis carried out by the AWG, we consider alternative indicators to quantify sustainability gaps for euro area countries. With respect to the policy implications, we assess the appropriateness of different budgetary strategies to restore fiscal sustainability taking into account intergenerational equity. Our stylised analysis based upon the lifetime contribution to the government's primary balance of different generations suggests that an important degree of pre-funding of the ageing costs is necessary to avoid shifting the burden of adjustment in a disproportionate way to future generations. For many euro area countries this implies that the medium-term targets defined in the context of the revised stability and growth pact would ideally need to be revised upwards to significant surpluses.

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The purpose of these working papers is to promote the circulation of research results (Research Series) and analytical studies (Documents Series) made within the National Bank of Belgium or presented by external economists in seminars, conferences and conventions organised by the Bank. The aim is therefore to provide a platform for discussion. The opinions expressed are strictly those of the authors and do not necessarily reflect the views of the National Bank of Belgium.

Tommaso Padoa-Schioppa was one of the great architects of the euro. He is remembered in particular as co-rapporteur for the Delors Committee and as a founding member of the European Central Bank's Executive Board. For Padoa-Schioppa, becoming Director-General of the European Commission's DG II (from 1979 to 1983), was a defining moment in his career and life. This period is the main focus of this paper. At the Commission, Padoa-Schioppa's main priority was the European Monetary System, which was launched in March 1979. He was closely involved in several projects to strengthen the EMS, to improve economic policy convergence and the position of the ECU. The other main objective for Padoa-Schioppa was the strengthening of DG II's analytical capacity, especially its model-building capacity and its links with the academic world. As such, he played a crucial role in the professionalisation of economics at the Commission and in preparing DG II for the important role it would play in the EMU process. At the Commission, Padoa-Schioppa became also immersed in several European networks. Of crucial importance here were his contacts with Jacques Delors. This would be of major importance for his further career, becoming one of the architects of the single currency.

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Statement of purpose: The purpose of these working papers is to promote the circulation of research results (Research Series) and analytical studies (Documents Series) made within the National Bank of Belgium or presented by external economists in seminars, conferences and conventions organised by the Bank. The aim is therefore to provide a platform for discussion. The opinions expressed are strictly those of the authors and do not necessarily reflect the views of the National Bank of Belgium.