Meeting the challenges of innovation and its dissemination as well as ensuring the labour force’s employability and flexibility, requires that human capital is continuously adjusted to labour market needs through improved education and training, as well as lifelong learning. Europe is still badly in need in Europe to enhance the quality and efficiency of our schools and universities as well as to increase incentives for all relevant parties, including firms and workers to invest in human capital. Before concluding, let me insist on the importance of sound fiscal management in line with the Stability and Growth Pact. Sound public finances are a prerequisite to support longlasting growth of output and employment, as the Spanish experience over the last decade has clearly shown. A complacent attitude related to current buoyant tax revenue that might result in higher expenditure could lead to negative surprises, should the macroeconomic environment turn less favourable. Beyond that, the “quality” of public finances also matters for growth. It is essential to increase public spending efficiency in order to facilitate the reorientation of public expenditure towards productivity-enhancing physical and human capital accumulation. And finally, let me remind you that within our currency union, regional monetary and exchange rate policies are no longer viable options. Flexible and integrated labour and product markets are prerequisites of the utmost importance for the smooth functioning of the  16  In the spring 2006 European Council, Member States announced country-specific targets for R&D expenditure amounting to 2.7% of EU25 GDP by 2010, up from 1.9% in 2006.

These impulses, as always, are administered under the conditions of an expected inflation performance close to the threepercent target of the Bank of Albania, and stabilized expectations of economic agents for it. The key interest rate cut by 0.5 percentage point by the Bank of Albania at end-October aimed at strengthening the domestic demand and reviving the lending activity. Its effect on the economy is not fully reflected yet, due to the short period of time and the time lags in transmitting the monetary policy. However, its pass-through to the money market, which constitutes the first link in the transmission chain, is a premise for its reflection to credit cost in a second round. In the meantime, our liquidity injecting operations have been successful in guaranteeing the backup of economy with funds, mainly short-term ones. Allow me to make a more detailed description of the economic and monetary developments during this period. *** At global level, the economic activity has been supported by improved overall economic climate, impacting on the improvement of the global economic activity, reduction of risk premiums and stability of global financial markets. However, the global economy and the European one continue to reflect economic vulnerabilities, which are transmitted to low inflationary pressures. This situation conditions also the pursuit of a stimulating monetary and fiscal policy by keeping interest rates at the historical low and by high liquidity injections. Back to the domestic economy, we should state that the new economic data were insufficient during October.