If you have debt approaching 100% of GDP, you have to reduce it to be less vulnerable. Are you worried by the political uncertainty? Political uncertainty is an important factor because we always need stable governments capable of taking action. And this is of course quite obvious: we don’t have the political stability necessary to put into place the necessary measures and policies, including a budget. What do they think here in Frankfurt about the fact that the budget has been deferred since the time when you were still a minister? Spain has continued to reduce its public debt. It could have been reduced more, but it could also have been reduced less. In any case there is one fundamental factor: the growth differential. In the Spanish economy, this now comes from a financial sector that doesn’t have the same doubts hanging over it as it did five to seven years ago. And it is competitive. The most important thing, in contrast to the previous and other growth cycles, is that it is growing without an increase in loans and without a real estate bubble. With lending growth that is below nominal GDP and a current account surplus in the balance of payments. As long as these two things continue, the Spanish economy will keep growing faster than the rest. The recommendation, which is also valid for Portugal, Greece and Ireland, and even for Italy, is this: stabilise the banking sector and the credit markets. And maintain competitiveness. Then you will do better than average.

For instance, banks and insurance companies are searching for growth through the diversification of their activities in such a way that they can no longer be considered as homogeneous institutions falling within the scope of one economic sector and one supervisory system! These conglomerates aim to exploit the synergies that exist among banking, insurance and investment. This market evolution towards huge financial conglomerates, with integrated product development is slowly blurring the traditional boundaries between banks and non-bank financial institutions, on the one hand, and the supervision of these institutions, on the other. In spite of these trends in the international financial markets, regrettably, supervisory systems, in our sub-region, are mainly structured along the traditional boundaries demarcating banks, insurance companies, investment and micro-finance institutions. These integration changes represent major challenges to the supervisors of the different sectors, especially as the financial institutions become more complex in their structures and operations. BIS Review 12/2005  1  Notwithstanding the foregoing, the sluggish growth of our economies in the sub-region has also created a difficult operating environment for financial institutions, especially banks. As a result, this has contributed to the mushrooming of non-bank financial institutions, such as, micro-finance. It is a fact that the financial sector in our sub-region is dominated by commercial banks, which have continued to service only a small section of the population. The majority of the people are denied access, largely, due to numerous reasons, including perceived risks, high costs involved in dealing in small transactions and the inability to provide marketable collateral for loans.