But changing deposit structures is a lengthy process. The second imbalance that the Spanish banking sector must overcome derives from its continuing high exposure to the construction and real estate sector, which after a lengthy period of excessive growth is now undergoing a severe adjustment. The Banco de España’s latest Financial Stability Report laid bare both the potential scale of the exposure to this sector of activity and the coverage existing to meet any associated risks. In this respect, the Banco de España has just published, for public consultation, an amendment of its financial reporting standards, in particular those relating to estimation of necessary credit risk coverage. Without going into further details here, suffice it to say that the reform deals with transparency and with the establishment of minimum criteria for institutions; criteria which have been simplified and made more consistent and which primarily respond to the lessons learned during the crisis. Moreover, and although in this respect there was no need for regulatory reform, the changes clearly reaffirm the understanding that certain banking practices, such as asset foreclosures, despite being legitimate problem management tools, cannot in any circumstances warrant delaying the recognition of losses. The third imbalance is connected with the Spanish banking industry’s excess capacity. During the growth years, banking sector activity rose very significantly. In a retail banking model based on proximity to customers, this continued upsurge in activity prompted sharp growth in organisational structures and in new branch openings.

Thus, before the summer, the restructuring of the banking system should be complete, save for a legal reform allowing savings banks to obtain high-quality capital on the market, to meet the new Basel standards. The government has the agreement of Spain’s main opposition party for the successful passage of this legal reform through Parliament. The restructuring and reform of the financial system, along with the budgetary adjustment, the public pension reform and the labour market reform, are the most urgent measures needed to restore confidence in the Spanish economy, and, as such, should be passed before the summer recess. But the process must not stop there, as further measures are needed to stimulate the recovery in growth and the modernisation of the Spanish economy. Vital tasks remain, such as: educational reform; the modernisation of general government and the removal of overlaps between the different tiers of government; guiding investment in infrastructure towards projects that enhance the competitiveness of Spanish firms; privatising or streamlining public corporations; increasing competition in network industries and particularly in energy; promoting collective bargaining agreements in the private sector that raise the competitiveness of the Spanish economy and thus create employment, etc. And not only at national or central government level, but also among regional and local governments, trade unions, employers’ associations and other economic and social agents. At this point in time, we must all face up to our responsibilities, with the corresponding costs and sacrifices.