being inflicted by the crisis on the productive system. the banco de espana projections include a third scenario, in which the materialisation of some of these risks might give rise to a decline in gdp for this year of 15 %. 3. economic policy in the second phase of the crisis the key magnitudes of these forecasts illustrate the challenges we face and the need to formulate a forceful economic policy response. i shall now turn to detailing the main elements which, in my view, this response should include. as earlier stated, in this second phase of the crisis economic policy should combine two objectives : to support the recovery and provide for the structural adjustment of the economy. first, i shall broach the policies relating to the monetary and financial areas. as part of the european central bank ( ecb ), the banco de espana contributes to such policy decisions at the european level. here the priority should continue to be to support the recovery and maintain financial stability. as mentioned in my previous testimony to the economic committee, i believe we should all share the goal of preventing the current crisis from being accompanied by a generalised tightening of financing conditions or from seriously harming our financial system. in this connection, and in relation to monetary policy, we have on the ecb governing council reiterated our commitment to doing everything needed to support euro area citizens in these extremely difficult times. that includes ensuring that our monetary policy feeds through to all sectors of the economy and to all countries, and heading off any financial fragmentation problems like those experienced in the past. in short, we stand ready to adjust all our instruments as necessary. on the supervisory front, the banking sector must clearly tackle this crisis from a healthier position than in the previous crisis. in any event, we should continue to be doubly watchful. first, over banks and financial markets, so they continue to smooth the flow of financing. and second, over the risks to financial stability. regarding the first objective, beyond the role of monetary policy, we supervisors have enabled banks to make use of the capital buffers available and the government approved a public guarantees programme for loans to firms that has softened financial intermediaries ’ reluctance to incur higher risks in circumstances such as the present. all these measures have been effective. the latest data for april show a year - on - year rebound of almost 90 % in the flow of new lending granted by banks to firms. in any case, the information analysed by the banco de espana shows that small firms

politics and economic government. constancio has been a member of parliament, minister of economy and finance, governor of the banco de portugal on two occasions, the second from 2000 to 2009, a member of the bis central bankers ’ speeches council of state and a professor at various portuguese university institutions. in 2010 he was appointed vice president of the ecb. given his position, and also in light of his personality and experience, constancio plays a very important role in steering and designing the ecb ’ s policies. he is a representative of what i would define as “ flexible orthodoxy ”, i. e. a rigorous point of view on ecb ’ s tasks and priorities, but one which flees from rigidity and never forgets common sense when it comes to the complex and often difficult decisions, in both the technical and political sense, that the ecb has to adopt. i give the floor to vitor constancio. bis central bankers ’ speeches