To achieve these objectives, there has been insistence both in the Banco de España’s reports and in my regular appearances before Parliament on the need to undertake wideranging reforms. The list is an extensive one and includes areas such as education, the knowledge economy, the liberalisation of goods and services markets, the boosting of competition in the network industries and the introduction of further improvements in the house rental market. However, I would like to stress two reforms which I consider most pressing and necessary: budgetary consolidation policy and labour reform. The government has in recent weeks  BIS Review 27/2010  1  tabled some proposals for reform which, in my view, are in the right direction. In respect of public finances, a cut of € billion in overall general government spending has been announced in the period up to 2013 and, within the framework of the so-called Toledo Pact, an increase in the retirement age has been proposed that would contribute significantly to the financial balance of the public pensions system. The budgetary measures proposed are a significant public commitment by the government to fiscal consolidation. For that very reason, it is now essential that these commitments should be actually met, since otherwise Spain’s credibility might be most adversely affected. As regards the labour market, the social agents have reached a wage agreement and the government has set out proposals for labour reform.
Export demand was expected to rise at a slower pace, while domestic demand was forecast to increase somewhat faster, mainly owing to increased investment but also to a slightly stronger pick-up in private consumption. That was also assumed to contribute to an improvement in the labour market. Against the background of the continued cyclical upswing and expectations of a reduction in spare resources, domestic inflation was forecast to rise. Higher wage costs in line with an increase in employment and lower productivity growth was assumed to imply a faster increase in unit labour costs and a gradual rise in companies’ costs. The factors that had resulted in falling prices for imported goods in the past year were estimated to gradually diminish during the forecast period, even though we anticipated that imported inflation would remain low in the period ahead as well. It is reasonable to expect that a pick-up in resource utilisation in the world economy will lead to higher international price pressures. We also made the assessment that the krona would not appreciate nearly as much during the forecast period as in recent years and that it would therefore not have as large a restraining effect on price increases in Swedish kronor in the period ahead. The shift seen in imports in recent years, which has involved a greater share coming from low-cost countries, is likely to continue, however, and probably depress import prices in the period ahead as well.