Spain has a significant productivity gap with the euro area and recent research has related this gap to an inefficient reallocation of resources towards less productive firms during the expansionary period. However, since 2008 there has been an improvement in the reallocation of resources, especially due to the disappearance of many unproductive firms. But business mark-ups stand at relatively high and rising levels. This could indicate a persistent lack of competition in some markets, with adverse implications in terms of competitiveness, for instance, those regulations that distort the cost of production among firms or affect incentives to grow, such as market barriers due to the heterogeneity of regulations across regions. More generally, the Spanish economy continues to exhibit a low productivity level in terms of the average firm, something that can be perhaps explained through different combinations of inadequate managerial skills and educational attainment of workers, as well as a relatively low a degree of technological capitalisation. Hence, it is important to pass reforms aiming at reducing the rate of early school dropouts and to foster the relationship between firms and both the vocational training and university systems. These, together with a new well-designed and effective system of incentives to suppport innovation  6/9  in the private sector are prerequisites for enhancing the Spanish economy’s stock of technological capital and its capacity to innovate. So far, I have addressed a number of issues mostly from a national point of view. But, indeed, solving Spain’s problems cannot be done in isolation from the euro area.

From those years we also saw: the Bank Recovery and Resolution Directive, which finally came into force in 2016, providing a comprehensive framework to deal with failing banks outside common mercantile insolvency proceedings; and the 2014 directive harmonising national deposit guarantee schemes. Despite these improvements in the euro area’s institutional framework, significant vulnerabilities still persist, both at the area level and in Member States. Additional steps would be required to ensure a more stable and stronger Monetary Union. In order to overcome the current complacency arising from the more favourable economic and financial environment, the European Commission has put forward a number of initiatives aimed at advancing towards further economic integration. Completing the Banking Union was, rightly, given top priority, and included the creation of a common backstop for the Single Resolution Fund and a common European Deposit Insurance Scheme (EDIS), although, in this latter case, in my opinion, to deactivate the perverse loop between sovereigns and banks a more ambitious approach than the one pursued by the Commission would perhaps be needed. Also, a consensus is needed to move, in parallel, towards increasing private and public risksharing and reducing risks in bank balance sheets, stepping up efforts to lower the still-high levels of NPLs and diversify sovereign risk exposures. Current proposals to create Sovereign Bond-Backed Securities, by structuring asset pools into tranches with different risk levels, could potentially contribute to such diversification. There are Commission´s proposals in other areas.