during the last stretch of the year, the eurogroup is to work on these two initiatives, with a view to their being adopted at the december summit. the eurogroup should also continue to discuss other possible elements for completion of economic and monetary union. in particular, definition of a roadmap for the creation of a 12 / 14 european deposit insurance scheme ( edis ) with sufficient shared fiscal backing would be desirable. in the economic and tax spheres, some kind of common cyclical insurance mechanism is also needed, to cut adjustment costs for countries experiencing asymmetric shocks, and help is needed to design a fiscal policy more tailored to the euro area as a whole so that, in the event of a severe crisis, monetary policy will no longer be the only tool available to uphold aggregate demand. in future, further progress must also be made in the capital markets union, which is essential to achieve greater capital market integration, fortify banking union and strengthen the private mechanisms for efficient allocation of financial resources and the risks associated with their investment throughout the european union. conclusions as you can see, the banco de espana ’ s annual report provides an ambitious analysis and diagnosis of the spanish economy. the main conclusions drawn in the report, which was prepared in the first half of the year, remain essentially valid, despite the apparent growing deceleration of the global, european and spanish economies : - first, the need to take advantage of a level of economic growth that is still above potential to speedily and determinedly address the necessary fiscal consolidation process. in this respect, guaranteeing the financial sustainability of the public pension system is particularly important, in view of the medium - term implications. for this purpose, a comprehensive package of measures to address the effects of population ageing on the economy is essential. - second, advantage should also be taken of the current cyclical conditions to intensify the structural reform agenda and prevent its reversal. in the case of the labour market, the level of temporary employment and repeated contract renewals should be reduced, without undermining job creation, active policies should be focused on the most effective measures to enhance employability and set in place mechanisms that facilitate greater alignment between wage conditions at individual firms and their productivity levels. these factor market reforms must be accompanied by product market reforms that encourage business competence and competition. productivity gains in the economy also demand improvements in human and technological capital. - third, in the financial sphere, the spanish financial system continues to face various significant challenges. notably :

which has been underpinned by the reforms already pushed through, which are contributing to correcting the imbalances built up during the upswing that ended in 2008. however, and this is the third factor, the favourable developments in the spanish banking sector cannot be understood without considering the transformation it has undergone. this has involved the recapitalisation and restructuring of bank balance sheets ; downsizing, entailing reductions in staff and in bank offices ; and an overhaul of the savings bank sector, improving the corporate governance structure and resolving the situation whereby it was impossible for these institutions to tap the capital market for funds. these favourable developments are apparent in the behaviour of certain variables, which i shall briefly review. i. non - performing loans non - performing loans ( npls ) as a proportion of lending to the resident private sector in spain have been falling since early 2014. on the preliminary data for february, the latest figures available, the npl ratio for spanish banks as a whole declined to 12. 6 %, the lowest proportion for the past 18 months. this improved asset performance is the case both for households and for non - financial corporations. ii. funding spanish banks have improved their access to both retail and wholesale funding, and have significantly reduced their recourse to the liquidity provided by the eurosystem. nonetheless, recourse to the eurosystem remains high given the limited activity on interbank markets. the trajectory of deposits in 2014 and the still - declining trend of credit have allowed the narrowing of banks ’ loan - deposit gap to continue. the gap has narrowed by almost 40 % since 2007. bis central bankers ’ speeches iii. profitability the capacity of banks to generate profit reflects their resilience in the face of potential difficulties and, at the same time, their possibilities of developing banking business in a sustainable fashion. figures for the first nine months of 2014 confirm that the sector has left behind the losses recorded in 2012. this better performance is underpinned by both the reduction in operating expenses and the lower provisioning needs derived from asset value adjustments. net interest income, under downward pressure from limited business activity and low interest rates, increased moderately in 2014 compared with the same period in 2013. that said, this recovery is as yet modest and the downside pressures on the statement of income persist, meaning banks must persevere in containing their operating costs. iv. solvency attesting to spanish banks ’ solvency were the results of the stress test conducted before