The structural reforms undertaken in Spain over the course of recent years have helped make the economy more robust and adaptable to adverse situations. This is particularly desirable in an increasingly changeable and uncertain global environment. One of the key elements providing greater resilience and flexibility is the labour-market reform, which gave businesses more internal flexibility. This flexibility provides additional tools with which to adjust labour costs in the event of a short downturn instead of the traditional mechanism whereby workers – mainly those on temporary contracts – are laid off. Other reforms have also encouraged better allocation of funds by the financial system to new, higher potential, investment projects. These include financial system reform and insolvency law reform, in particular. Despite these changes, the Spanish economy still faces major structural challenges that limit its potential growth. I would like to highlight three of these challenges: population ageing, the high unemployment rate, and low productivity growth. Population ageing has consequences for the effectiveness of traditional macroeconomic policies, the sustainability of the public finances, and productivity growth. Addressing this challenge requires a multidisciplinary policy that creates incentives for older workers to remain in the labour force, revises migration policy to try to adapt it to the needs of the labour market, and boosts the birth rate to bring it closer to rates in other European countries by improving the work-life balance and enhancing job stability in the childbearing years. Meanwhile, the high unemployment rate remains a serious drag on growth and welfare.

Also, as the IMF has recently indicated, it would be desirable to assess the suitability of bail-in strategies in the event of systemic crises, given their potentially adverse effects on the financial system as a whole, which may ultimately raise social losses and the cost to the taxpayer. In order to make further progress in reducing the risk of financial fragmentation within the euro area, it is necessary to boost private-sector risk-sharing channels, such as the credit and capital market channels, so that they work alongside the public-sector risk-sharing mechanisms. This requires, first, removing obstacles to the creation in the medium term of genuine pan-European retail banks. In particular, a single deposit insurance fund needs to be created, the euro area needs to be treated as a single jurisdiction for regulatory purposes and, above all, market pressure needs to reach broad segments of the European banking system, such as public-sector banks, cooperative banks and savings banks. Second, progress needs to be made on the various Capital Markets Union initiatives. The implementation of this project should lead to more efficient and integrated capital markets, enabling European businesses to diversify and broaden their sources of funding and to reduce their excessive dependence on bank finance. However, this is a complex objective that requires action on various fronts, including the development of market infrastructures, the review and harmonisation of market regulation and supervision and of insolvency procedures, and the elimination of the bias in favour of debt financing in some countries’ tax systems.