be made to the collective bargaining system so that settlements are more closely related to the specific situation of firms. it is also necessary to increase the incentives for the stable hiring of employees, reducing the segmentation and duality brought about by the still - high numbers of temporary employees as a proportion of the total labour force, despite the fact this proportion has fallen in recent years. in this respect, the reform of hiring arrangements in the past has been in the right direction, as it has reduced the differences in terms of costs between temporary and permanent employment contracts. stepping up investment in capital goods and establishing conditions conducive to the incorporation of technological progress, especially in the ict field, are vital factors for boosting productivity gains in the economy. nevertheless, as the experience of other countries ( particularly the united states ) has shown, to reap the potential benefits of the incorporation of new technologies through investment also requires setting a more flexibly working economy in place, pushing through structural and liberalising reforms, and designing an appropriate regulatory framework. structural reforms aimed at promoting flexibility, innovation, human capital formation and competitiveness should not be considered as having only medium - and long - term effects. the recent history of the spanish economy illustrates the relative speed with which their effects have become visible, when they have been applied with perseverance and consistency. this is because they alter the expectations of agents, who incorporate the new framework into their behaviour almost immediately. the foregoing takes on special importance in the face of the challenges eu enlargement entails. the similarities between the productive specialisation of our economy and that of the accession countries, combined with their low - cost and highly trained labour, pose a challenge to the spanish economy, which has to face stiff competition in those industries in which spain is more specialised. it will be necessary to bolster the competitive capacity of the spanish productive structure through productdifferentiation and quality - enhancing strategies, by improving its endowment of technological and human capital and by developing the technologically most advanced industries. but spanish companies must also set in train strategies enabling them to harness the opportunities of enlargement and to increase their presence in the new areas of the single market, channelling their foreign direct investment efforts in that direction. financial aspects of the spanish economy some of the financial features of recent developments in the spanish economy are of particular importance. as i have said, monetary and financial conditions remained generous in the spanish economy and, in step with this, financing received by households and

stood at end - 2002 at 4 %. this increase in inflation has been partly reversed, thanks to the improvement in recent months which has seen this rate cut by around one percentage point. however, the bout of rising inflation last year fed through in part to wages, highlighting the importance of reinforcing wage moderation. in fact, the inflation differential with the euro area, despite narrowing recently, has remained persistent. and that may pose a risk for future competitiveness. in the area of price formation, a cause for concern is the differences that continue to be seen in business margins, depending on whether industries exposed or not to competition are involved. in the former, mainly export - geared companies, the rate of change of prices has been virtually zero for over a year, reflecting the efforts exporting companies have to make to compete in markets experiencing a particularly delicate situation. in parallel, other industries less exposed to competition continue to increase their operating margins considerably. the spanish economy ’ s resilience in the face of the adverse external environment in 2002 offers bright prospects for short - and medium - term developments, having placed it in a sound starting position for more dynamic growth as the international climate improves. however, the expansionary impulses stemming from emu membership will tend increasingly to have a lesser effect, while the economy will have to address new challenges arising from the stiffer competition that eu enlargement will entail. consequently, the growth pattern may not reside so much on consumption and construction but will have to be underpinned to a greater extent by investment and exports, meaning that dynamism will depend particularly on their profitability and competitiveness. national economic policies will thus have to be geared to strengthening these elements by promoting macroeconomic stability, business profitability and the competitiveness of the productive system. as earlier indicated, budgetary policy has contributed to domestic stability by means of fiscal consolidation and the control of the budget deficit. if in the future, against a background in which european monetary conditions will remain relatively generous for the requirements of the spanish economy, demand pressures were to persist and contribute to sustaining an inflation differential unwarranted by the process of real convergence, it might be advisable to move towards a budgetary surplus position. that would additionally help tackle the problems of the long - term sustainability of the pensions system. maintaining competitiveness, which is one of the main long - term challenges, will require continuing wage moderation and higher productivity gains. to do this, certain changes must