the essential ingredients of any sustained recovery. the private sector must take up the baton from the public sector in support of activity, and net external demand should play a predominant role. the success of the fiscal consolidation programme is a centrepiece of this strategy. correcting the budget deficit has become an unavoidable priority for spanish economic policy. the budget outturn data currently available suggest the targets set for 2010 will be met, at least as far as central government conduct is concerned. on this basis, it is therefore vital to design a budget for 2011 that is fully consistent with meeting the budget deficit target of 6 % of gdp for that year. to ensure no deviations arise, monitoring and surveillance procedures for the budget outturn must be reinforced and, should deviations be detected, corrective measures must be rapidly applied. the availability of contingency plans designed sufficiently in advance would contribute greatly to the success of these measures. the draft state budget details appropriately the revenue - and spending - side measures that should allow compliance with the state target set. in terms of its composition, moreover, the draft budget has most of the adjustment falling on public spending. and this, on past experience, raises the effectiveness of the consolidation strategy. yet the presence of risks threatening the attainment of these targets should not be understated. the budget is based on a macroeconomic scenario of significant recovery which, if not confirmed, might lead to a revenue path worse than projected. as i said, if this were the case, offsetting measures should immediately be applied. but perhaps the biggest risk to general government meeting its targets stems from the potential deviations that may arise at the regional and local government level. as known and reiterated on many occasions, the high decentralisation of public spending in spain means that the collaboration of the regional and local governments is essential for achieving budgetary stability. at the end of this year it will be possible to make a full assessment of the consolidation drive made by the regional budgets, but my impression is that, as matters stand today, the measures announced by most regional and local governments far from respond to the reduction in public spending needed. i therefore believe formulas must be sought to strengthen regional and local government commitment to budgetary stability and to encourage compliance. in this respect, we should not rule out a revision and strengthening of the national budgetary framework, in particular in the case of regional and local governments, a framework that resides essentially on the budgetary stability law. such action would be

in line with the recommendations recently made by the european council for all european countries in the framework of the review of governance in europe. a key element of the budgetary stability law for achieving fiscal discipline is transparency. the dissemination of data relating to the non - financial activity of the state is abundant, detailed and released with a relatively small lag. this is regrettably not the case for regional or local governments, which curtails the ability to control their activity in time and accountability. in my view, these shortcomings must urgently be redressed. at a time such as the present, a lack of transparency may lead to a lack of market confidence that takes the form of a further premium on the cost of financing. given the circumstances, all available instruments should be used to ensure compliance with the targets set. in particular, authorisation for regional and local governments to issue new debt should be conditional upon compliance with consolidation plans. a spending ceiling might even be considered for these governments, an instrument which has proven enormously useful in strengthening budgetary discipline in the case of the state. along the same lines, medium - term planning necessitating analysis of the structural dynamics of the various public revenue and spending items and enabling those areas where the scope for rationalisation and adjustment are greater to be detected may prove appropriate, especially when adjustment measures going beyond a temporary correction of imbalances are required. in this setting, the reform of the pension system currently under discussion is especially important. indeed, it goes beyond the major goal of ensuring the long - term sustainability of our pensions system in the face of the challenge of population ageing. this reform may also have significant and beneficial short - term effects on the credibility of the authorities ’ commitment to budgetary discipline and the ability to see through far - reaching structural reforms and favourably influence the risk premia on public debt. the promptness and ambitiousness of the reform are essential. a suitable combination of changes in certain parameters of the system, raising the legal retirement age, the minimum number of years necessary to qualify for a pension and the period over which the pension is calculated would help ease substantially the pressure on future public spending on pensions and resolve one of the spanish economy ’ s major outstanding problems. fiscal consolidation is an essential condition for ensuring future economic growth. the effort will no doubt be rewarded because it will place the spanish economy in a sounder position to anchor the recovery. its long - term effects will in any event prove more forceful if accompanied by