Our failure to appreciate the importance of competitiveness goes to the heart of our attitude to inflation. For the past three years our inflation has been double that of the rest of the euro zone. By definition this has reduced our competitiveness by a corresponding amount but we have displayed the wrong reaction to this situation. Instead of trying to fix inflation and remove the threat we have simply sought to compensate each other for the price increases. In doing so we forget the obvious truth: that any attempt to deal with inflation in that manner will only make the situation worse, not better. The way to deal with inflation is to fight it, not to give in to it. Fighting means incurring a cost now but in return for long-term benefits, while giving in now means avoiding an immediate cost but at the price of a much greater cost in the future. We must fix our minds on the proper target which is how to maintain competitiveness.