course contents. here it is fitting to point out that some areas of education in spain continue to produce disheartening results : in particular, the percentage of young people completing secondary school studies continues to be among the lowest in europe. hence government policies aimed at remedying this underperformance ( in which the regions play a central role ) should be prioritised. firms, along with trade unions, also face the challenge of containing the effect of the adjustment on employment. given the repercussions that unemployment has for spending and, above all, for household confidence and the general climate of uncertainty, this variable is crucial, since a smaller impact on employment would reduce the fall in demand and lower the probability of being caught in a vicious circle. in this connection, it should be kept in mind that all macroeconomic adjustments are different. that seen in spain in 1992 and 1993 stemmed from an accumulation of substantial losses in competitiveness, which could be recovered fairly rapidly through the devaluation of the peseta. but the devaluation also led to a steep rise in the import bill which reduced spain ’ s real income and made it necessary to impose tighter financial conditions in the form of high interest rates, making the adjustment of national demand particularly pronounced. in the current circumstances, membership of the euro area prevents a sharp currency depreciation from reducing household purchasing power and, at the same time, limits the possible financial shocks that domestic borrowers might suffer. however, belonging to the euro area also makes it impossible to rapidly restore nominal competitiveness to a more advantageous level for national production. for this reason, it is much more important than in the past for spain to set in train immediately all the mechanisms that allow it to curtail cost rises and to increase productivity gains, so as to make production competitive and to reduce the negative effects on employment. hence the external sector could provide a substantial offsetting influence in the adjustment phase and a larger boost to the subsequent recovery. this moderate cost behaviour demands a responsible response from firms and trade unions to the current labour market situation. clearly the wage bill cannot be expanded by major pay rises, since this eventually leads to a higher relative cost of labour and, consequently, less job creation, higher unemployment, loss of household confidence and fresh falls in demand, which would mean still lower growth and more unemployment. therefore, it is crucial to adapt wages to the specific situation of firms, to their activity, productivity gains, profits, etc. the current wage

respect i think that the ecb is fully complying with its task. it would have been very negative if the european central bank had fallen into the temptation of forgetting its objective of containing inflation, attempting to alleviate the painful adaptation by households and firms to the very substantial increases in commodity and oil prices that we have experienced. fortunately, there is complete confidence that the ecb will ensure that inflation returns to its target level, and this is helping to somewhat reduce the uncertainty surrounding the financial system, growth and other variables. in the case of budgetary policy, one positive element of the spanish case is its favourable starting position. this is based on the notable budget surpluses recorded in recent years and on the sustained decline in the ratio of government debt to gdp to 36 %, a very low figure in comparison with other developed countries. this initial situation has made it possible for automatic stabilisers ( i. e. the reduction in revenues due to the slowdown and the increase in spending on unemployment as a consequence of the rise in the numbers of unemployed ) to be allowed to operate freely, providing a significant counter - cyclical component in the adjustment phase. moreover, this good starting point has, for example, avoided the need to react to the current losses of revenue by raising taxes, which would have certainly magnified the intensity of the adjustment. that said, the slowdown in spending is having a significant impact on tax revenue, reducing the budget balance very rapidly, so that utmost prudence must be exercised in fiscal and budgetary decisions. the need to provide the appropriate incentives means that it is advisable not to adopt widespread and permanent discretionary budgetary measures that attempt to counter the effects on households and firms of the inevitable reduction in national spending required by the adjustment process. measures to increase spending would, at best, enable activity to be sustained only temporarily and would not help to improve the prospects for expansion in the medium term. and i say at best because, without an improvement in external competitiveness, a large part of the increase in public spending would leak abroad and have only a minimal impact on domestic activity. likewise, strengthening control over current general government spending is an essential measure in response to a low - growth phase, since it limits the deterioration in the budget balance, signals stability and rigour to the private sector, and provides greater leeway to undertake public investment projects that enable the spanish economy ’ s productive base and competitiveness to be enhanced. it should also be remembered that, since the