Analysed from a shorter time perspective, the expansion of credit proves somewhat more moderate, although it is not significantly removed from nominal GDP growth. As might be expected in the current situation, characterised by greater uncertainty and risk aversion, new loans are being granted under more onerous conditions than in the past, which include lower loan-tovalue ratios and shorter maturities. The trajectory followed by credit in Spain to August may be said to be behaving in a manner consistent with the process of adjustment the Spanish economy is undergoing and with the prevailing global conditions, which entail higher financial costs, heightened risk aversion and serious difficulties in obtaining funds on international financial markets. From the standpoint of financial stability, Spanish banks have demonstrated greater resilience than their counterparts in many other countries. But as I have previously stated, there is no room for complacency here, since the challenges ahead are considerable. A crisis such as that currently rocking worldwide financial markets can hardly be neutral for those who depend on such markets to a relatively greater extent. And nor can the fact that a sizeable portion of the Spanish financial system’s financing flows is tied in one way or another to the real estate sector be ignored either. However, for numerous reasons, including most notably the quality of our regulation and supervision, Spanish banks have not been involved either in the generation, marketing or acquisition of the toxic financial products that are inflicting such harm on the international financial system.

Those small countries in particular had to accept the new economic reality of lower demand, higher unemployment and forced fiscal consolidation due to a fall in tax income or borrowing difficulties. The other group consists of bigger or more closed economies that were relying on domestic demand. They were able to smooth the initial impact of the crisis with more extensive government support measures. There was also the expectation that the crisis would be temporary. With the benefit of hindsight we know that we were not facing a temporary bump on the road, but a more fundamental need for adjustment. The initial smoothing of the shock may have been even more costly as it resulted in a higher level of public debt. Secondly, the required policy adjustment involves a dimension which we now consider critical: the speed of reacting and the decisiveness of policy actions. The Baltic countries have learned it firsthand through their experience, which of course is the hard way. There are few economists today that would fundamentally question the need for fiscal consolidation and structural reforms in Europe, as the crisis has clearly turned out not to be temporary. However, we all know it is politically difficult to cut government spending and implement reforms fast. The natural tendency for most politicians is to favour gradual adjustment. “Gradualists” say that in case of fast changes the risk of possible policy mistakes is higher, leading to losses in physical and human capital. Opponents of that view, including myself, certainly acknowledge those risks.