Defaults increase when, as now, the deterioration in activity weakens the financial position of bank customers, particularly in the case of households whose members lose their job. Thus, following a long economic boom that brought doubtful assets ratios to historically low levels, the year 2008 saw a sharp rise in such ratios, and the persistence of difficulties in the real sector of our economy suggests that pressures have not yet dissipated. This is a risk that banks must be mindful of and manage appropriately. The diminished pace of activity and the increase in bad debts, which are general trends across Spanish banks and savings banks, exerted pressure on their income statements already in 2008. The recurring income inherent in a traditional banking model, which is therefore less reliant on financial market developments, explains why, despite the difficult economic circumstances, bank results were positive, in clear contrast to those reported by many of the institutions in other developed countries’ banking systems. But Spanish banks’ results will come under considerable pressure in the future. In the short term, as a result of the foreseeable increase in bad debts. In the medium term, because competition for funds will squeeze operating margins and this pressure will not be readily offset as it was in the past by the generation of higher volumes of business. And I do not believe that the ongoing deleveraging of the financial sector, and of the economy in general, taking place both in Spain and globally, should be viewed as transitory.

Economic recovery in Spain requires structural changes that will encourage technologically dynamic productive sectors with high growth potential to take up the baton from construction. For this to occur, the labour market must function so as reallocate resources, increase and adapt workers’ skills to new demands, and make productive processes within companies more efficient. Reform should focus on ensuring that labour conditions adjust to the economy’s different cyclical junctures and, in particular, to the specific circumstances companies or productive sectors face. That should prevent the adjustment coming about through pushing large numbers of workers out of the market. Changes are also needed in hiring arrangements. These must allow workers who have lost their jobs to return promptly to active working life, so they do not spend long periods unemployed, the consequences of which were so adverse in the past. Improvements in labour market intermediation systems and in mobility and training for the unemployed are also very important. Resolute action here would help check business closures and lessen the risk of decapitalisation, which is admittedly very high at present. If, moreover, significant progress were made in eliminating administrative formalities, the Spanish economy would be better placed to resume a high growth rate once the world recovery began. To bring about a new productive pattern enabling high rates of potential growth to be regained, structural measures must span a wide range of fields. Improving the level of educational attainment of the labour force is vital for raising the quality and productivity of human capital.