available – which point to a budget deficit approaching 10 % of gdp in 2010 and to a public debt ratio that might exceed the threshold of 60 % of gdp – augur a drastic change in outlook, with the possibilities of fiscal policy boosting spending having been exhausted. fiscal measures that call into question the commitment to budgetary stability in the medium term should be categorically avoided, since that would adversely affect the cost of raising funds and confidence in the spanish economy, and it could also generate expectations of future tax rises that might ultimately sterilise the expansionary effects of the measures adopted. public - sector debt must be prevented from becoming an obstacle once the spanish economy is better placed to grow. accordingly, priority must be given to promptly defining a credible strategy to reduce the deficit to levels compatible with budgetary stability, once the exceptional circumstances that led to the rise in the deficit have disappeared. the demand - side expansionary fiscal and monetary impulses are proving very powerful and are contributing to the alleviation of the contractionary forces at play. evidently, though, the possibilities of further using these types of policies have become notably constrained, both at home and abroad. it should also be borne in mind that, once the economic and financial fragility beleaguering the world economy has been resolved, demand - side policies should adopt a more neutral stance. all these considerations on the diagnosis of the spanish economy in the current international crisis and on the limited leeway available to demand - side policies mean, rather, that economic policy has a central role to play in implementing the reforms that help improve productivity and the behaviour of the factor and product markets. it is in this area that the authorities undoubtedly have effective room for manoeuvre, and also considerable responsibility. let me begin with the labour market, which is where the most pressing problems are to be found. the scale of job destruction has once more highlighted the existence of distortions that emerge with force in recessions and compound contractionary trends. and there is a risk that, as in the past, the surge and change in level in unemployment may stick and that this will delay subsequent recovery. labour market dysfunctions are also closely linked to the discouraging behaviour of the economy in respect of gains in economic efficiency and in productivity, hampering the possibility of attaining genuine improvements in competitiveness and of raising growth potential. economic recovery in spain requires structural changes that will encourage technologically dynamic productive sectors with high growth potential to take up the

risk managers ’ expert judgement. quantifying risk involves making assumptions and judgements. and no model, and no software package, no matter how sophisticated, can ever replace the skills of a trained, experienced and conscientious risk manager. that is why we have made sure that the basel ii framework is much more than numbers and models. such judgement should be reinforced, however, with the best possible information, techniques and tools for processing that information. to the extent that risk assessment and control methods become more formalised and rigorous, this will lessen the likelihood of making bad decisions. it will also contribute to the prompt detection of errors and deviations from targets, allowing banks to implement corrective measures at an early stage. the first two trends that i have cited relate to the internal efforts firms undertake to identify and measure their risks. the third trend i ’ d like to highlight concerns the dramatic increase in the use of transactions designed to transfer exposures to risk, especially to credit risk, to outside counterparties and even to investors. credit risk transfer this past autumn, the joint forum released for public comment a study on the current use of credit risk transfer activities among financial service providers, along with a series of recommendations on how to promote sound risk management practices in this area. in recent years, the markets for credit derivatives, credit default swaps, collateralised debt obligations and other products have grown tremendously, providing financial service providers with new mechanisms through which they can reduce their direct exposure to credit risk. such tools may also help to reduce concentrations of risks in particular firms. i think that the emergence of these new channels for re - packaging and selling off credit risk serves as another means of looking forward to the future to manage risk. in this sense, the rapidly expanding secondary market for new credit - risk related instruments bears witness to the innovation and the search for new ways of managing risk that is so vital to the continued evolution of the financial sector. however, we must remember to look back at the fundamental risks involved in these practices. the sale to outside parties of credit risk packaged into new instruments helps, of course, to transfer the risk, but the credit risk still exists. while the transfer of risks to institutions or households that are better able to withstand them is a positive factor, and one of the structural explanations for the resilience of the banking sector during recent periods of stress, we should be conscious that this development may introduce some new risks into the system, such as operational risks,