in sum, to mitigate all those structural shortcomings that are currently weighing on the recovery and contributing to reducing the growth potential with which our economy will face the new expansionary cycle. to achieve these objectives, there has been insistence both in the banco de espana ’ s reports and in my regular appearances before parliament on the need to undertake wideranging reforms. the list is an extensive one and includes areas such as education, the knowledge economy, the liberalisation of goods and services markets, the boosting of competition in the network industries and the introduction of further improvements in the house rental market. however, i would like to stress two reforms which i consider most pressing and necessary : budgetary consolidation policy and labour reform. the government has in recent weeks tabled some proposals for reform which, in my view, are in the right direction. in respect of public finances, a cut of €50 billion in overall general government spending has been announced in the period up to 2013 and, within the framework of the so - called toledo pact, an increase in the retirement age has been proposed that would contribute significantly to the financial balance of the public pensions system. the budgetary measures proposed are a significant public commitment by the government to fiscal consolidation. for that very reason, it is now essential that these commitments should be actually met, since otherwise spain ’ s credibility might be most adversely affected. as regards the labour market, the social agents have reached a wage agreement and the government has set out proposals for labour reform. advantage should be taken of these initiatives to adopt specific and ambitious measures that entail deep - seated changes in the functioning of our labour market. we stand at a pivotal juncture for our future, a point at which it is vital to radically change certain things so that spain may continue to converge on the core european countries. some of these reforms may require sacrifices, and it would therefore be best to have as broad a consensus as possible. the effective adoption of these reforms is crucial for the economy in general, but particularly so for the financial system. and if anything has been highlighted by the current global crisis, it is the close relationship between economic growth and the strength of the banking system. two years on from the onset of the turmoil in summer 2007, most spanish credit institutions continue to show considerable soundness. unlike in many other countries, this has meant that practically no public aid has had to be used to bail out banks, which has prevented adding a further burden to the problems stemming from

, which find it most difficult to take advantage of the flexibility mechanisms offered by the current institutional framework, and they would benefit enormously from the implementation of a more flexible and simpler system. meanwhile, budgetary consolidation could be achieved without swingeing cuts in expenditure and the banking system would be in a position to support this new growth phase. it would thus be a mistake to opt for small - scale labour reform, as if we could even afford to tackle this reform slowly, in various phases over various years. this would have been possible 5 or 10 or 15 years ago, when the last expansion phase started and the need for labour reform was not pressing. indeed, there was so little urgency that, unfortunately, in the last 15 years there has not been a single labour reform capable of preventing our rigid labour markets from suffering, for the third time, an adjustment along the old familiar lines of leaving millions of spanish workers jobless. voices are sometimes heard casting doubt on whether labour reform is urgent, arguing that the labour market is not at the root of this crisis. this is quite true, but it is an argument which does not constitute grounds for ignoring the prime importance of this reform. if you allow me the metaphor, our labour market has shown itself to be a fragile ship which, each time there is a storm, springs leaks which are enormously costly to seal. obviously the storm is not the fault of the ship ’ s captain, but he can make repairs before it is sunk by the storm. but, what is more, our labour ship also functions poorly when there are no storms. in the periods of highest growth of the world economy, we continue to have the highest unemployment rate and our labour productivity growth is mediocre, limiting the scope for wage increases. the ship does not sink but it sails – in terms of productivity and of reducing unemployment – at a poor speed in comparison with the rest. lastly, it is true that, even if a reform is approved which assimilates our labour institutions to those in the more developed countries, this does not ensure the immediate resolution of our problems of growth, public finances or banking system health. more measures have to be adopted and, among them, as i have said, budgetary consolidation is key. but let there be no mistake : while labour reform is not a sufficient condition, it is nevertheless an absolutely necessary and essential one without which the other measures or reforms adopted will have a much diminished effect on the competitiveness of our economy.