Additionally, despite the fact that the more productive companies have gained weight in their respective sectors over the past decade, there are still certain obstacles limiting the efficient allocation of resources. Specifically, there is a need to analyse the level of competition in sectors with persistently high profit margins. It would also be desirable to reduce the impact of factors preventing the most productive companies from growing. In this regard, the regulatory thresholds contingent on company size in the legislation need revising. Making decisive progress on this structural reform agenda is crucial to increasing the economy's long-term growth and laying the foundations for a society that offers its citizens more opportunities. Many of the policies I referred to earlier foster reductions both in the economy’s structural imbalances and in inequality, such that it should be possible to build a broad-based consensus for their approval, despite the obvious difficulties caused by the current political fragmentation. The challenges for the financial sector In the wake of the last crisis, Spanish banks carried out a thorough process of balancesheet clean-up, recapitalisation and restructuring which, over the last four and a half years, has markedly improved the industry’s position on basic parameters, such as asset quality or levels of profitability and solvency. Starting with asset quality, between December 2013 and June 2018 there was a very significant reduction in non-performing loans and foreclosed real-estate assets. Similarly, return on equity returned to positive terrain with rates above the euro area average, recovering from its slump to -25% in 2012.

The empirical evidence reveals that maintaining a very high level of public debt for a prolonged period tends to hamper economic growth as it becomes a source of vulnerability and reduces the scope for the public budget to act as a stabiliser in the event of a recession. The simulations made in a number of papers published by the Banco de España show that, on realistic assumptions, the process of reducing Spain’s government debt will be very gradual. It may even take several decades to reach a debt-to-GDP ratio of 60%, which is the reference value in Europe’s current fiscal rules. In the light of these considerations, priority should be given to taking advantage of the current favourable economic context to reduce the vulnerabilities deriving from the public finances and create budgetary room for manoeuvre with which to address future crises. These efforts should be given the form of a medium-term programme spelling out the measures enabling the budgetary objectives to be met, and a prudent macroeconomic and public revenue projections. This process of reducing the fiscal imbalances also needs to be compatible with an improvement in the quality of the public finances. In this connection, the composition of the programme’s revenue and expense adjustment is very relevant to achieving its objectives without hindering economic growth. Combining fiscal consolidation efforts with other structural reforms should also help in this respect. Reducing the vulnerability of Spain’s public finances is even more important when we consider the medium and long-term challenge posed by population ageing.