Although the low interest rates and the long average maturities of liabilities keep the financial burden within moderate limits, at end-2004 the cushion of saving available after interest and capital payments had fallen to practically zero for Spanish households as a whole. However, the effects of higher indebtedness and of this lower saving on household wealth were again more than offset by the notable surge in their real-estate wealth, which was strongly linked to the rise in house prices. As a result, the overall financial position of Spanish households remains sound. The strength of the sector’s balance sheet as a whole is likewise reflected in the microeconomic information drawn from the Spanish Survey of Household Finances recently compiled by the Banco de España. Although this survey identifies a household segment that is in a more vulnerable situation than is apparent from the overall indicators, the size of this segment is small. While the notable changes in the household balance sheet have not led to a weakening of their wealth position, there has been an increase (by various mechanisms) in this sector’s exposure to a relatively broad range of possible shocks, thereby raising the sensitivity of consumption and of residential investment to them. These shocks notably include those that may affect employment, a variable which, as mentioned above, largely determines the behaviour of household spending. Obviously, the behaviour of interest rates is also very important. However, the greatest uncertainties lie in the possible implications of developments in the real-estate market.

There are some favourable aspects to the new rules, but they raise doubts as to the Pact’s capacity to deliver the budgetary discipline that proper functioning of the Monetary Union requires. Regardless of the fact that a full assessment of the agreement reached can only be made once the related legal texts are known, it is imperative, to dispel the uncertainty the reform process has aroused, that the European authorities should now apply the revised rules unequivocally and strictly. The European Council also revised the so-called Lisbon Agenda, with which it was hoped to reinvigorate the European economy in the first decade of the new millennium. Assessment of the results achieved at the half-way stage makes disappointing reading. The introduction of reforms has been insufficient and the European co-ordination mechanisms have proven too weak to encourage the adoption of the appropriate measures at the national level. The Council has sought to re-launch this strategy, focusing on growth and employment, and altering the co-ordination arrangements between the Council, the Member States and the Commission, so as to ease the way for the adoption and monitoring of reforms at the national level. This new direction is appropriate, although more specific measures giving a more determined political impulse to the process would have been desirable. Such determination will be needed, in particular, to overcome the obstacles hindering completion of the single market. Indeed, these were manifest in the European Council’s request that the Commission revise its draft directive on liberalising the provision of services in the Union.