Whereas the expansionary stance of fiscal policies scarcely altered in the main developed countries, where public debt continued on a rising trend, the accommodative stance of monetary policies (though, overall, they also helped sustain growth in 2005) was gradually toned down. The main central banks – especially in the United States and, to a lesser extent, in the euro area – progressively raised interest rates and withdrew the unusual monetary stimulus of the previous years. This pattern will possibly also extend to Japan this year, making it likely that, for the first time in 15 years, there will be a phase of monetary policy tightening in the three major developed areas. In this respect, I should stress that the gradualness of the decisions adopted and central banks' clarity in transmitting them have steered financial market expectations, which has been conducive to their stability and has cushioned the impact of these measures on world growth. But beyond the generally still-expansionary stance of macroeconomic policies, I believe a significant factor that helps explain the buoyancy of the world economy in recent years is the broadly generous financial conditions that most countries have faced. Real and nominal interest rates at various terms, financial and real-estate asset prices and risk premia have, in general, held at very favourable levels for consumption and investment. In turn, the favourable expectations of economic growth, in a setting of abundant liquidity, fed into rising stock market trends and the reduction in risk premia on corporate and emerging-market debt.

In respect of corporate income tax it is intended, in addition to reducing the rate in line with international trends, to make more rational use of the system of tax allowances and deductions. Although it is estimated that the impact of tax reform on revenue will be small, its effect on activity will be slightly expansionary. Accordingly, if the economy retains its current dynamism, it might be necessary to introduce some compensatory adjustment. It should be recalled that the entry into force of the EU Financial Perspectives 2007-2013 will entail fewer financial flows from Community coffers. That all reinforces the need in the coming years to design budgets that add to the stabilising role of fiscal policy. On the public spending side, now most spending powers have been decentralised, the co-ordination mechanisms between the different tiers of government must be strengthened. I should moreover stress the importance, once very high levels of decentralisation are in place, of achieving a greater degree of commitment by all levels of government to budgetary stability. The failure by many regional governments to meet the budgetary stability target in 2005 and the deficit projections for 2006 are warning signs for potential shortfalls, which should be prevented and avoided. The new stability laws should contribute to identifying and correcting these potential situations, promoting prompt and transparent information on regional public finances. Lastly, some comments on the challenges posed to the sustainability of public finances over the medium and long term, derived from population ageing.