spanish economy remains uncertain, although this has abated somewhat recently in light of the brighter figures for the world economy. it is likely that the recovery in the spanish economy will lag that in the euro area to some extent. this is due above all to the marked weakness of investment, not only in the case of housing, but also in that of business investment, given the very low levels of capacity utilisation. while public investment will continue to account for a high proportion of gdp in 2010, this figure will be lower than in 2009. the outlook for private consumption is more uncertain. the main determinants of consumption will not be favourable, given the foreseeable behaviour of employment and the difficulty of reversing the high unemployment rate. yet as the decline in households ’ consumption has been much more drastic than that of their incomes, the saving rate is climbing to very high and indeed unprecedented levels. hence, if the factors of uncertainty were to abate, consumption might contribute more significantly to the recovery. given these constraints, the main support factor of activity in 2010 has to be the external sector. this will be assisted by the earlier recovery of our main trading partners and the relatively favourable course that spanish exports are following. foreseeably, a phase of gradual growth will begin over the course of the coming year, based on a continuing positive contribution of external demand and on a progressive pass - through of the improvement in the world economy to business investment and employment. on average, however, 2010 might still see a moderate decline in activity, the result above all of the carry - over effects of the negative rates in 2009. the growth path in 2010 might also be affected by the vat rise announced for next july, since this measure might bring forward some spending decisions to the second quarter, raising demand and activity in this period but reducing them in the second half of the year. this slow path of recovery in activity broadly matches the government's macroeconomic forecasts on which the state budget for 2010 is based. the setting i have described highlights the significant challenges the spanish economy faces. for the recovery to materialise and firm, the spanish economy must first check and then absorb unemployment, restore health to business and household finances, rebuild confidence in the economy's productive capacity and reduce the large budget deficit. to achieve these goals, i reiterate that it is vital to adopt an ambitious agenda of reforms. the economic policies pursued since the start of the crisis have focused on countering in the

short run a very adverse economic and financial situation, and there is broad consensus that the efforts made have contributed positively to this end. however, now the foundations for a potential turnaround are discernible, the structural problems of the spanish economy must be addressed to avoid the risk of a scenario of protracted economic sluggishness. regarding monetary policy, the cuts in official rates by the ecb are helping alleviate financial pressure in the private sector. and this is a factor which, given the prevalence of floating interest rates in spain, will continue to alleviate the burden on households and firms over the coming quarters. fiscal policy has also contributed to softening the downturn in activity by means of a highly significant budgetary effort that has been greater than that in other developed countries. the cost, though, has been a very swift and sharp rise in the budget deficit which, on the latest official government figures, might rise to around 10 % of gdp this year. irrespective of how long the cyclical change takes to exert positive effects on the budgetary situation, i would like to draw your attention to the fact that much of the deficit generated over the past two years has a significant structural component ; and the recovery, therefore, will not correct this component. indeed, despite the fact that in the coming years revenue will foreseeably increase owing to the reversal of the temporary effects of some of the activitysupporting measures adopted in recent years, it should be borne in mind that the exceptionally high revenue obtained during the real estate boom will not recur. at the same time, in connection with public spending, primary spending has held at a high growth rate in recent years, attaining levels that cannot be sustained for much longer and which, therefore, it will be necessary to reduce. in turn, the deterioration in the budgetary position is taking the form of a rapid increase in public debt and, therefore, too, in the amount of resources needed to meet the payment of the interest burden. it should also be stressed, as various recent past episodes in some developed countries show us, that the dynamics of rising debt can prove difficult to reverse. all the more so when some factors that helped towards its reduction in the past, such as lower interest rates and the high growth of nominal gdp, can no longer be counted on. the need to reverse the high structural deficits and to prevent the risks linked to debt dynamics from materialising thus evidences the fact that there is no more room