Yet any slippage in prices would impair the economy s competitiveness and have repercussions on employment. Also, participation in the euro area precludes any cushioning adjustment via the exchange rate. In the short term, a tighter budgetary policy could keep the lid on inflation, but in the longer term a reassessment of the conditions for salary indexation will be needed. At the same time, competition should be bolstered in certain product markets. Electricity prices, for example, remain among the highest in the OECD area, in part, because competition between producers is limited.
Unemployment is another area where Spain has serious problems.
And yet, wage levels in these two regions are very similar. Moreover, unemployment benefits are relatively generous, so it is not surprising that migratory movements between regions are rare. In fact, fewer than one in four workers say they would accept a job if it meant having to move. One way of reducing such rigidities is to allow the wage bargaining process to reflect local conditions more closely. Another idea would be to review measures that impose heavy penalties for breaking housing leases, to make labour more geographically mobile.