In this setting, the reform of the pension system currently under discussion is especially important. Indeed, it goes beyond the major goal of ensuring the long-term sustainability of our pensions system in the face of the challenge of population ageing. This reform may also have significant and beneficial short-term effects on the credibility of the authorities’ commitment to budgetary discipline and the ability to see through far-reaching structural reforms and favourably influence the risk premia on public debt. The promptness and ambitiousness of the reform are essential. A suitable combination of changes in certain parameters of the system, raising the legal retirement age, the minimum number of years necessary to qualify for a pension and the period over which the pension is calculated would help ease substantially the pressure on future public spending on pensions and resolve one of the Spanish economy’s major outstanding problems. Fiscal consolidation is an essential condition for ensuring future economic growth. The effort will no doubt be rewarded because it will place the Spanish economy in a sounder position to anchor the recovery. Its long-term effects will in any event prove more forceful if accompanied by structural reforms that raise the economy’s growth potential. The elements interconnecting both policies are on an enormous scale: potential growth influences the sustainability of public finances, while an appropriate distribution of adjustment efforts across the various spending and revenue items is conducive to activity and has expansionary effects on output and employment.

The Committee stated in January that “it can be patient in beginning to normalize the stance of monetary policy,” and that the timing of any policy shift will be data dependent, based on an ongoing careful evaluation of progress towards the Committee’s goals of maximum employment and 2 percent inflation. 1 Emerging market officials and market participants have expressed concerns that Fed liftoff might spark an undue tightening in global financial conditions, creating a new growth headwind for emerging market economies. These concerns are understandable. The Federal Funds rate has been near the zero lower bound for more than six years. The Taper Tantrum in the spring and summer of 2013 provides a ready reminder of the potential for volatility around actual or perceived news concerning Fed policy. Like other central banks, the Fed’s monetary policy mandate is defined in domestic terms. Yet the Fed takes the potential international implications of its policies quite seriously. In part, this comes from a sense of a special responsibility given the international reserve currency status of the dollar. An outward-looking perspective is also warranted because the international effects of Fed policies can spill back onto the U.S. economy and financial conditions. It is of note that emerging market economic performance during previous Fed tightening cycles has generally been good. During the last three U.S. tightening cycles, EME industrial production growth has come to between 7½ and 10 percent over the 12 months from the start of Fed tightening, while EME export volumes have risen 10 to 15 percent.