However, the progress in correcting other imbalances has been more meagre and the economy retains significant elements of vulnerability. These include most notably high public indebtedness, running close to 100% of GDP, and the nation’s still-high net debtor position, despite the aforementioned current account surpluses. Substantial structural dysfunctions also persist in the labour market, as illustrated by the still-high unemployment rate, and a growth pattern more intensely conducive to high-productivity activities generating high value added has yet to definitively take root. And this against a background in which population ageing will 7/14  significantly reduce the economy’s potential growth, while imminently posing far-reaching challenges in public pensions. Moreover, the banking system still has significant challenges ahead, which I shall refer to later. In the setting described, characterised by the gradual loss of momentum of the effects of demand-side policies, it is particularly desirable that the measures aimed at correcting these vulnerabilities should take the lead, thereby supporting medium and long-term growth. The current juncture of economic expansion should be harnessed to make the necessary reforms and gain budgetary room for manoeuvre to face adverse cyclical situations in the future. Allow me to focus now on each of the challenges mentioned and the potential economic policy responses.

In order to foster an adequate level of competition, apart from lowering the barriers to entry in some sectors, certain regulations hampering the development of new productive firms will have to be reviewed, either because they provide incentives contrary to the development of business growth or because they hinder the exit from the market of firms with sub-optimal productivity, thereby limiting the proper allocation of productive resources in the Spanish economy. Additionally, enhanced productivity requires improvements in human and technological capital. In this respect, the educational legal framework needs to be strengthened, to eliminate the gap between the educational quality indicators of Spain and other developed 10/14  countries, and the challenges to Spain’s educational and occupational training system posed by globalisation, technological process and task automation need to be addressed without delay. Furthermore, during the crisis the technological capital gap between Spain and its European partners widened due to lower spending on R&D as a proportion of GDP in the public and, particularly, the private sector. In addition to the structural features limiting firms’ innovative ability (in terms of human capital, business capabilities, productive structure, business competition and financing), Spain’s public research system is susceptible to improvement and the budgetary funding of innovation is low. Challenges facing the Spanish banking sector Let me now concentrate on some of the main challenges facing the Spanish banking sector. Despite the significant progress made in recent years in terms of profitability, solvency and liquidity, it still faces some significant challenges, largely shared with other euro area banking systems.