Sustainable fiscal adjustment in the medium and long-term will depend on the enactment of structural reforms in the public sector rather than on provisional measures. Besides jeopardizing the attainability of budget targets, a delay in structural reforms will also cause the supposedly provisional measures to become permanent. Such implementation might affect the quality of expenditures and revenues unfavorably and cause inflationary impacts due to revenue-boosting methods. Therefore, increased control and effectiveness in public expenditures are critical factors for the quality of fiscal adjustment. A study comparing the fiscal adjustment policies implemented at different times in OECD countries2 revealed that a long-term improvement in public balance can be achieved through expenditure-curbing policies rather than revenue-boosting policies. Besides controlling public expenditures, incomes policy also plays an important role in increasing the quality of fiscal adjustment. For this reason, the implementation of incomes policy must be coherent with the inflation target. As I have mentioned before, important policies are pending in the upcoming period in the framework of the European Employment Strategy. These policies are aimed at ensuring that high growth performance affects employment in such a way to assure a sustainable increase in employment, to increase the additions to the labor force and to establish a more flexible labor market. Developing coordination in economic policies and a harmonization of the decision-making process is another outstanding factor. All these factors will not only establish macroeconomic stability and increase social welfare in Turkey, but also play a key role in the European Union integration process.

This was all done in collaboration with the European Commission, the ECB, the IMF and the European Banking Authority, in the presence of independent consultants and auditors, and with the participation of the Banco de España supervisory and regulatory teams, which was technically very important for the performance of the exercise. The recapitalisation of our banks has been carried out through private access to markets; the injection of capital financed via the financial assistance programme agreed with the European authorities; the conversion of hybrid instruments into capital instruments; and the provision of funds by the FROB (Fund for the Orderly Restructuring of the Banking Sector) and the Deposit Guarantee Fund. From May 2009 to last September, the public assistance afforded to financial institutions to reconstitute their capital amounted to a somewhat over € billion (6% of our 2012 GDP), close to € billion of which were under the Financial Assistance Programme approved with the European authorities in July 2012. The essential aim of these recapitalisation operations using public funds has been none other than to preserve the deposits in the institutions in question (as is widely known, these are the only bank liabilities not to have undergone any loss throughout the process), providing for business continuity by these institutions’ own means or by their absorption by others. This is a crucial point I wish to highlight, as it is not always well-understood.