The ECB’s conjunctural measures are of no use, however, in resolving the central problem revealed by the crisis: the need for mechanisms that help counter the risks arising from the fact that countries with heterogeneous structural features share a common currency and that, therefore, they can no longer resort to their own monetary and exchange rate policies as macroeconomic stabilisation instruments. At the various summit meetings held in recent years, the euro area Heads of State or Government have reaffirmed their unequivocal political commitment to keeping the EMU project on track and to completing monetary union and moving towards greater economic integration. Evidently, though, in this process it will be necessary to share substantial sovereignty in sensitive areas such as fiscal policy or banking system oversight, and to set in train mechanisms allowing some degree of risk mutualisation, without this potentially discouraging economic discipline in the various countries. The steps taken so far are along the right lines. But without wishing to speak out of turn, there is notable room for improvement in the pace at which decisions are being taken. On the fiscal front, reforms to date have translated into a significant strengthening of the Stability and Growth Pact. Key factors in this reinforcement have been the greater attention to debt ceilings and the establishment of greater automaticity in the procedures to evaluate potential non-compliance and to activate the necessary corrective mechanisms, along with the requirement to revise national legal frameworks.

Taking a shorter-term perspective, the need to lower the high levels of public and private debt accumulated in the past makes improving competitiveness the key to restoring confidence and the growth of output and employment. With no possibility of currency devaluation, internal devaluation, i.e. the adjustment of prices and remuneration, along with productivity gains stemming from better work management, is the only alternative available in the immediate future to promote and restore lost competitiveness. Almost 12 years back, Ángel Rojo marked his departure from the Banco de España with his speech on the 1999 Annual Report. In a climate of exuberant optimism, he made a warning about credit growth which, he said, “continues to rise at very high rates”, the result being “a heightening of demand pressure on trend output, with worrying effects”. Our problems now are not excess demand or a surfeit of credit, but how to correct these “worrying effects” Rojo warned us about. Let me close my address with his recommendations, as I am sure they will be of interest to you: “Under these conditions, the Spanish economy needs to restrain the expansion of demand and increase the degree of flexibility in labour and product markets in order to sustain high, stable growth rates in the future. Specifically, it requires a policy to further reinforce fiscal consolidation, to push through greater labour market flexibility in industrial relations bargaining and to forcefully pursue deregulation and the infusion of greater competition in product and service markets”. Thank you. BIS central bankers’ speeches  5