confederal agreements for collective bargaining, habitually signed by social agents, restrict the capacity to adjust wage increases to industry - or firm - wide productivity developments, in addition to setting a floor for the increase in nominal wages. the indexation clauses included in a high proportion of agreements have particularly harmful effects when exogenous price - rise shocks occur, as with the current hike in oil prices, since they tend to reinforce the upward inertia of wages. collective bargaining arrangements should be made more flexible to provide a framework in which, establishing the necessary guarantees for workers, wage and working conditions are adapted more readily to the needs of an efficient and competitive functioning of firms and industries. it is also crucial to promote permanent hiring, to correct the duality persisting in the labour market, since the ratio of temporary to total employees has continued to increase in 2005 and in 2006 to date. the agreement on labour market reform recently signed by the social agents and the government is a very timid step in this direction ; although it seeks to discourage temporary hiring ( with results that are difficult to assess in advance ), it leaves some of the core problems underlying the restrictive use of permanent hiring largely unchanged. in particular, although a more transparent system of rebates has been introduced for this type of hiring, the dismissal costs linked thereto have not been changed. in this connection, mention may be made of the extension to 2007 of the period in which employers can convert temporary contracts into permanent ones, availing themselves of the employment - promoting contract, which envisages a smaller redundancy payment. the issues pending in the field of labour reform are very important, since this is a very significant area for the effectiveness of the numerous liberalisation measures implemented first, under the plan de dinamizacion ( plan to bring about a more dynamic economy ), and further under the national reforms programme. the proper implementation of these programmes, which have been favourably assessed in the european commission's follow - up of the lisbon agenda, is vital if the spanish economy is to leave behind the path of low productivity growth on which it has been moving. undoubtedly, the high availability of labour is a factor that partly explains the low increases in productivity. but this should not mask the difficulties faced in increasing and modernising productive capital, in properly training labour and in incorporating technological advances, difficulties that must be overcome to improve the competitiveness of the productive system. market flexibility and efficiency is a vital requirement for sustaining long - term

contrast between this optimism on financial markets and the wariness of companies, mirrored by slack investment in the real sector which is particularly striking if regard is had to the favourable trend of corporate profits. several explanations have been offered for the muted performance of business investment in recent years, such as the difficulties in valuing investment in intangible assets appropriately, over - investment in the second half of the nineties ( which caused surplus capacity in recent years ), the ongoing reduction in corporations'financial leverage, the uncertainty generated by globalisation and companies'caution following the recent changes in the legislative and accounting framework in the wake of the corporate scandals in some countries. insofar as some of these factors are probably transitory, greater investment momentum may be expected in the coming years. the buoyant global demand for commodities and the attendant rise in their prices were conducive to the economic growth of the commodities - exporting countries, while widening the room for manoeuvre of their economic policies. the latin american countries benefited from this positive effect on their terms of trade, enabling them to reconcile relatively high growth rates with current - account surpluses. in this respect, a clearly contrasting use was made of this greater flexibility by the latin american countries : while some have sought to strengthen their macroeconomic fundamentals and reduce their vulnerability by limiting and improving the terms of their debt, others have given an interventionist bias to their policies which seriously undermines the maintenance of legal security and dents their mediumterm investment and growth prospects. as stated, an essential ingredient in the stability of the world economy has been the maintenance of moderate inflation, despite the rise in energy and other commodities prices. admittedly, the dynamism of china and other emerging asian economies has contributed to this increase in commodities prices ; but their penetration in the international markets for manufactures has also helped contain wage and price pressures. the greater anti - inflationary credibility of monetary policies is, in any event, responsible for anchoring inflation expectations at moderate levels, having prevented the so - called " second - round effects " – via prices and wages – that prompted a global inflationary spiral in the eighties in the wake of dearer energy. this diagnosis, far from making us complacent, should be a reminder that such credibility cannot be taken for granted ; rather, it has been attained thanks to policies clearly geared to safeguarding price stability, policies which we are bound as central banks to persevere with. what does the immediate