To do this, it opted to amend some of the features of the system currently in place, albeit without altering its most substantial aspects. In particular, the collective bargaining system has remained outside the bounds of the reform; this limits its scope and effectiveness, since the interaction of bargaining with the labour hiring system is a key determinant of the labour market’s adjustability. Notwithstanding, the reform promises headway in terms of internal and wage flexibility that requires proper assessment, since it broadens the scope for firms in difficulty to negotiate wage conditions with their workers that are better suited to the actual situation and to help save jobs. As I have indicated on numerous occasions, had this possibility actually been available during the recent crisis, the labour market adjustment would not have fallen so severely on employment. BIS Review 92/2010  3  In parallel, in order to reduce the duality in hiring, certain measures have been adopted to increase the incentives for permanent hiring. These involve extending the possibilities of using stable employment-promoting contracts and the elimination of some of the causes that encouraged an unwarranted use of dismissals for reasons other than economic ones. The categories of workers that may avail themselves of permanent employment-promoting contracts have also been widened, and certain restrictions on temporary hiring have been introduced. The passage of the reform through Parliament should be used to add greater clarity to the wording of the permanent employment-promoting measures so as to rule out restrictive interpretations and boost its implementation.

After a prolonged period of growth, this segment had reached a size which, given the evolving demand for banking services, entailed a clear excess of capacity. From an individual standpoint, the prolongation of the crisis affected the capacity of institutions to generate profits for the following reasons: an increase in non-earning assets (doubtful loans and repossessed real estate assets), the narrowing of margins due to a fall in income associated with rising non-earning assets and to a higher cost of funds, the decrease in business volume, etc. Moreover, the high growth of previous years, due particularly to increased business with the real estate sector, had raised the dependence on wholesale debt markets, exposing savings banks to the liquidity risk associated with adverse developments in those markets. Compounding this is the intrinsic limitation of savings banks when it comes to raising core capital, a limitation which is important because the trend in both the markets and the prudential financial regulation currently under international revision is clearly towards stepping up requirements in this area. Given the need to downsize this sector and the conviction that the productive structure of many credit institutions had to be rationalised to hold efficiency at adequate levels in a sector characterised by growing competition, the time was ripe for the creation of the FROB, under whose auspices many savings banks have arranged their mergers or institutional protection systems (hereafter referred to by the Spanish acronym “SIP”).