We have witnessed a process, with no practical solution in sight, involving nationalisations, bankruptcies, bank interventions, the creation of new investor guarantee schemes and considerable curbs on market practices, such as those affecting the short-selling of equities. The list of institutions affected includes most notably: the major investment banks, whose business model has succumbed to the turmoil; the US government-sponsored mortgage agencies; one of the biggest worldwide insurers; and major US credit institutions. In Europe, UK, Danish and Icelandic banks have been involved, as have more recently those from euro area countries such as Belgium, the Netherlands, Luxembourg, France and Germany. Moreover, several European governments have announced their readiness to guarantee their banks’ deposits. The foregoing developments pale into insignificance in the face of the importance of the US Treasury’s decision to propose a far-reaching programme whose stated aim is to tackle globally the serious problems besetting the American financial system. The initial appropriation of $ billion for this programme, and its dramatic presentation by the US Treasury Secretary, illustrate the scale of the problem. As you are aware, the plan was finally approved following heated debate in the House of Representatives and in the Senate. Clearly, beyond its effects on specific banks, this unprecedented crisis is profoundly shifting some of the key coordinates that have framed global financial developments in recent decades. An economy such as Spain’s, which has been financing a substantial proportion of its expenditure abroad, can hardly isolate itself from the consequences of such deep-seated changes.

Miguel Fernández Ordóñez: Recent developments in the Spanish economy Testimony of Mr Miguel Fernández Ordóñez, Governor of the Bank of Spain, to the Parliamentary Budget Committee, Madrid, 7 October 2008. *  *  *  Budgetary discussions this year are taking place at a time when the Spanish economy is deep in a process of adjustment proving much more pronounced than initially expected. The international backdrop is marked by the weakening of the US economy, sharp rises in oil and commodities prices and, above all, the scale and persistence of the turmoil on international financial markets. Given the latest events in the United States and Europe, it is no exaggeration to say that we are faced with a global financial crisis without precedent in recent times which will require an overhaul of the principles that have governed the regulation of international finances in recent decades. The world economy is in exceptional circumstances, with a general loss of economic dynamism, surging inflationary pressures and serious financial instability problems. These are exacerbating and accentuating the adjustment of the Spanish economy which the exhaustion of the cycle had already set in train, following a long period of expansion. Moreover, this is the first occasion on which the Spanish economy has faced such a process since joining the Economic and Monetary Union, which provides undoubted buttresses but also poses considerable challenges. The economic policy debate behind the preparation and approval of the Budget is thus of crucial importance.