Noteworthy in the area of regulation are the proposals made by the Basel Committee for Banking Supervision, which directly address the need to increase the amount and quality of capital held by institutions to absorb potential losses, the advisability of introducing minimum liquidity standards, and the usefulness of creating capital cushions to help moderate credit cycles. Specifically with regard to the aim of dampening the tendency of markets to amplify economic cycles, headway is being made in the design of provisioning systems which, in essence, are similar to those in place in Spain since mid-2000 (the dynamic or countercyclical provision). International accounting regulators, particularly the IASB, also seem to be converging towards these systems. Also with the aim of mitigating excessively procyclical behaviour of financial markets, management compensation guidelines have been drawn up to discourage excessively risky strategies. Also in the pipeline are major regulatory changes to mitigate the moral hazard problems posed by institutions which in various ways ultimately acquire what has come to be known as systemic significance. Naturally, this regulatory adjustment will have a significant impact on financial institutions. That means that, irrespective of how long a transition period is deemed appropriate, financial intermediaries should now set in motion the adjustment process, to ensure the least possible upheaval. Spain’s financial institutions have understood this and are notably strengthening both the level and quality of their capital. The restructuring process of the Spanish banking system runs alongside the reform of the global financial system.

Although the details of this programme are still being worked out, the volume of the funds involved, which including the IMF contribution could amount to as much as € billion, seems sufficiently illustrative of the determination of governments to defend the common European project. Naturally, as in the case of the initial support package for Greece, the possible financial support will always be subject to a strict principle of conditionality, as an indispensable factor to ensure that the underlying problems are addressed with sufficient ambition and determination, and to avoid possible situations of moral hazard which could degenerate into the accumulation of new risks for the future. The European Commission and the European Central Bank have also contributed decisively to this task of strengthening the common pillars of the area. In this respect important steps have been taken to establish a sounder framework of policies to preserve the smooth functioning of the euro area. I refer in particular to the Commission’s recent proposals to strengthen in various ways the Stability and Growth Pact and to extend the areas of mutual oversight and consultation within the EU. The ultimate aim of these proposals is the early detection and redressing of those imbalances which, as has become clear to us in these last few months, will put the stability of the euro area at risk if allowed to continue and accumulate. In this respect, the European Central Bank has also reacted to the emergency situation.