In terms of the composition of the macroeconomic figures, the view of the Banco de España does not differ greatly from that of the Government; the adjustment of national demand is projected to continue further, while net demand will remain the linchpin of the Spanish economy, although its considerable contribution to growth will not suffice to prevent a contraction in activity and employment. As earlier stated, it is vital here that companies should harness the flexibility afforded by the new labour legislation to respond to the changes in demand without having to shed staff. If  2  BIS central bankers’ speeches  used appropriately, not only will this prevent the demise of certain companies, but production will also be much more competitive and Spanish products more attractive, both domestically and abroad. Evidently, in a situation like the present, the recovery in Spain should be export-led. Accordingly, all measures and reforms that enhance competitiveness should be considered a priority. In this connection, the State Budget for 2012 is part of a broader, medium-term consolidation strategy that requires the participation of the different levels of government. The Stability and Growth Programme unveiled in late April to the European authorities details these objectives up to 2015, with a breakdown of the efforts required by each level of government. From my standpoint, the fiscal consolidation process is one of the cornerstones of the recovery of the Spanish economy, although the adjustments needed to meet the fiscal targets may in the short term exert adverse effects on demand and activity.

This is in light of the composition activity is likely to evidence, given the sizeable weight of exports and the weakness of private consumption and the real estate market, which may lead to lower revenue than the course of output might suggest, as was the case in 2011. The foreseeable decline in employment also appears to suggest Social Security contributions will be more modest than budgeted. Finally, there is substantial uncertainty surrounding projected revenue takings in respect of the special treatment accorded to undisclosed income. Turning to expenditure, the draft Budget outlines highly significant cuts in public investment, current transfers and goods and services purchases. These projections are not without risk, given the substantial inertia some of these items show, which hinders any permanent change in their trajectory. Precisely to reinforce this trajectory, the government added further education and health-care measures following the presentation of the draft Budget, which should contribute to attaining the targets set. That said, overspending on items such as unemployment benefits or pensions cannot be ruled out, since they depend on factors beyond the control of the authorities, such as the unemployment rate, demographics and inflation. Given these risks, the Budget must be rigorously implemented and mechanisms activated to enable any emerging deviations to be detected sufficiently in advance, so that additional countervailing measures may be taken. If this were necessary, measures to contain current expenditure or to increase indirect taxes could be adopted, as already contemplated in the Stability Programme ahead of 2013.