In the exposed sectors, price increases cannot be far removed from those made abroad, whereas in the sheltered sectors there has been a continuous tendency to widen margins, irrespective of where the economy is in the cycle. Hence, the combination of a rather inflexible wage structure and still-insufficient competition in certain services sectors has led to the phenomenon of dual inflation, which feeds the inflation gap with the euro area. Another fundamental variable for the economy's competitiveness is productivity, although it is difficult to measure and interpret. Clearly, what lies behind the low labour productivity gains in recent years is the beneficial effect of employment-promoting policies, which have raised the economy's employmentgenerating capacity. However, research indicates that such low gains may also be reflecting a low increase in certain components of the stock of capital and an insufficient incorporation of technological progress. BIS Review 38/2002  5  The most significant means of expanding the economy's growth potential has therefore been the incorporation of workers into the labour force. This is a suitable way to improve the Spanish economy’s endowment and utilisation of productive factors, and should be maintained. But it cannot be the sole avenue. In parallel, investment must be bolstered, especially in those forms of capital most conducive to the incorporation of technical progress and innovation. Policies supportive of a more flexible and efficient corporate environment and aimed at the better functioning of the economy must also be persevered with.

Either new capital must be put into the bank before the transfer of assets or it must be injected into the AMC when the real value of its assets becomes obvious to everyone. Putting the money straight into the bank speeds up the restructuring process. 5  BIS Review 66/2000  Consolidated supervisory authorities I mentioned that supervision should be conducted on a consolidated basis, covering activities in different financial and non-financial sectors. Should also the organisation of the supervisory authority be “consolidated”? Several countries, including the UK, Korea, Australia and others have recently moved in the direction of creating an “FSA” which is responsible for the supervision of banks, securities markets and insurance. In Sweden, we have had an FSA since 1990. Is such a consolidation necessary and useful in all countries? In my view, the optimal structure of the supervisory authority depends on the structure of the individual country. In many countries, banks conduct the most important financial activities while securities markets are less important. Here at least bank supervision must be independent, have adequate resources and skilled staff. This is crucial. In many countries, bank supervision is a part of the central bank. This has benefited bank supervision because the central bank usually has legal independence, adequate resources and can attract qualified staff. Combining bank supervision with securities and insurance supervision will probably imply that supervision will move outside the central bank, since securities and insurance supervision is not normally a task of central banks. In this sense, bank supervision may become weaker.