these lines have to be thought out in depth and have to be justified by the existence of a market failure the resolution of which, through public intervention, gives rise to greater benefits than costs. lastly, in regard to the direct powers of the banco de espana, i would remind you of something that often seems to be overlooked : the institution i represent is part of the eurosystem. in view of that fact it will continue working to ensure that monetary policy implementation is compatible with holding inflation within the bounds set by the central bank and, at the same time, will help guarantee that adequate liquidity is provided so that money markets function properly. the social partners also have an important task : to co - operate so that, while the inevitable adjustment is taking place in the residential construction sector and in related activities, the rest of the economy, i. e. industry and services, becomes more dynamic. and for this to happen a moderation in private sector margins and in unit labour costs through wage moderation and / or productivity increases is fundamental. it should be quite clear for all that if the inevitable rise in unemployment in construction is not offset by greater dynamism in the rest of the private sector of the economy, employment may perform more negatively than expected. finally, i would like to mention the necessary action by government, in at least two areas of its competence. the first is fiscal policy. one of the major advantages of the fiscal consolidation drive during the long period of expansion of the spanish economy is that the government budget mechanisms, known as automatic stabilisers, can now operate fully. these mechanisms act rapidly, promoting confidence and facilitating agents ’ formation of expectations. however, the activation of fiscal policy measures of a discretionary nature must be prevented from jeopardising budget stability in the medium and long - term, since this would entail costs far exceeding any potential benefits that might be had in the short - term. the second area of action is that of measures of a structural nature aimed at improving the functioning of certain markets, increasing the flexibility of wage and price formation mechanisms and expediting the reallocation of factors across sectors of the economy. for this task to be successful, the responsible co - operation of the social partners is also crucial. to go into these matters in depth would need a whole conference in itself, so i shall conclude on this point, but not before reiterating once again the main idea i wish to leave with you today. the spanish financial system has not

pablo hernandez de cos : navigating through a storm - policy challenges in the current macro - economic environment introductory address ( via video ) by mr pablo hernandez de cos, governor of the bank of spain, at the pannel " navigating through a storm - policy challenges in the current macro - economic environment ", during the sixth european systemic risk board annual conference " addressing financial stability challenges ", frankfurt am main, 8 december 2022. * * * good afternoon everybody and welcome to this first discussion panel of the sixth annual conference of the european systemic risk board. in this roundtable, we will be discussing and sharing views on identified challenges affecting the conduct of policies in the current turbulent times, which are having important repercussions for the economic and financial environment. as noted by president lagarde, during her welcome address, in the course of this year we have witnessed an increase in financial stability risks. the appalling invasion of ukraine by russia, initiated as we were recovering the activity levels previous to the pandemic, has contributed to either fuel new or exacerbate existing systemic vulnerabilities in europe and beyond. spikes in energy and food prices, continued disruption of global supply chains and demand pressures have resulted in higher and more persistent inflation across the board. this has triggered a response of monetary policy, which is now normalising around the world, contributing to tighter global financial conditions and increased volatility and liquidity tensions. and it is the combination of the uncertainty derived from the war ( and more in general from geopolitical tensions ) with the increase of inflation and the rising interest rates that has generated, ultimately, a general deterioration of the economic outlook with, for example, one - year ahead recession probabilities having increased markedly, in both the euro area and other major advanced economies. this challenging financial stability outlook is well laid out in the warning on vulnerabilities in the eu financial system that the european systemic risk board issued last september. indeed, the esrb has alerted of the heightened uncertainty and the increased probability of tail - risk scenarios materialising. in particular, the esrb has warned of three severe systemic risks : 1 / 3 bis - central bankers'speeches ( i ) first, the deterioration in the macroeconomic outlook combined with the tightening of financing conditions, leading to negative consequences in terms of balance sheet stress for non - financial corporations and households, especially in sectors and member states that are most affected by rapidly increasing energy prices