the hike in oil and other commodities prices. once these effects have worked through, inflation should fall again in the coming months, although for this to happen it will be vital no second - round effects should come about, as these would harm the economy ’ s competitiveness. write - downs of the balance sheets of non - financial corporations and households have continued, with a slight decline in the outstanding balance of credit extended to these agents. in the case of non - financial corporations, behaviour has differed across the productive sectors, with modest increases in financing to companies other than those in real estate development and construction. in the case of households, deleveraging will no doubt be slower, insofar as the bulk of household debts are in mortgage loans extended over long terms, whereby repayment will be gradual. adjustment of the imbalances in the economy is vital in order to soundly underpin medium and long - term growth, although in the short run, balance - sheet write - downs in the general government sector, at credit institutions and in households and firms may check any take - off in spending. fortunately, the sluggishness of domestic demand is being offset by the buoyancy of external demand. the thrust of exports has been substantial and should continue to be so, whereby attaining further gains in competitiveness will be vital. this is the key variable for making the adjustment of the imbalances compatible with the firming of a more dynamic recovery. if this combination of adjustment and growth were to successfully take root, the spanish economy could see private - sector deleveraging, the stabilising of public finances and the restructuring of the banking system lead to an increase in confidence, softer financial conditions and, in sum, an improved economic outlook that would boost investment and employment. the role of economic policy remains pivotal for steering the adjustment process. in the case of fiscal policy, the measures adopted last spring marked the starting point. but substantial challenges lie ahead and determination will be required to define and specify the measures that allow public finances to resume a stable path. in the short run, the deficit target for 2011 is ambitious, as it entails a reduction of more than 3 pp of gdp to 6 %. but, at the same time, compliance is crucial in view of the financial markets ’ extreme sensitivity to the course of public finances. a great effort is needed but, as we have so much at stake, it is vital to prevent deviations from these targets from arising and, should they

the second pillar, the stress test, began in may and will evaluate the ability to maintain adequate solvency levels under stress, using the methodology agreed by the ecb and the european banking authority. this process will conclude in september and the publication of the results of the whole exercise is expected in late october. after this disclosure, those banks facing a capital shortfall will have to submit their recapitalisation plans to the ecb. i would like to say that, as we all know, the spanish financial system has undergone intense restructuring and recapitalisation, as well as a significant consolidation process. i am confident that spanish banks are prepared for this rigorous exercise. setting up the single supervisory mechanism and making it operational is not going to be a simple task. both from the procedural and organisational standpoints, it will be a complex process, requiring great effort, and will be a major responsibility for those who take on the leadership of this new european union - wide institution. bis central bankers ’ speeches ms sabine lautenschlager ’ s responsibilities as member of the executive board of the european central bank and vice - chair of the supervisory board of the ssm place her in a unique position. i have no doubt that her intervention will be extremely interesting and informative to us all. bis central bankers ’ speeches