##s, with no commitment to restructuring, seen elsewhere. the frob envisaged action on two fronts. on the one hand, it gave the banco de espana broad powers to take control of any institution that were to fail. and on the other, on what we could call the preventive side, it allowed financial support to be provided for the restructuring of viable institutions and their management teams, and helped them digest the process ; that said, the institutions themselves, and especially those that had experienced management failures, would have to bear the attendant cost. this meant that private sector solutions were prioritised, as has been seen in the processes that have unfolded in the past few months. today, it is fair to say that the restructuring and recapitalisation of spain ’ s financial institutions is well under way. it is now just a case of formalising and implementing the agreements reached. as a result, spain ’ s deposit institutions that did not already have sufficient capital have now secured it, either from the markets or from the frob. the banco de espana has conducted stress tests to verify that all institutions – banks, savings banks and credit co - operatives – will actually have sufficient capital available, not only for what would currently seem to be the most reasonable scenarios, but also for complex growth scenarios in the near future. accordingly, before end - june, the banco de espana will take the steps necessary to formalise the processes already agreed and to ensure they are correctly implemented. if, by month - end, any of these processes has failed, or any institution has been left behind, the bank will act, using the mechanisms envisaged for this purpose in the frob legislation. moreover, the bank intends to publish the results of these stress tests, to reveal the deterioration estimated, the consequent capital requirements and the capital funding committed, to provide the markets with a perfectly clear idea of the situation of the spanish banking system. thus, before the summer, the restructuring of the banking system should be complete, save for a legal reform allowing savings banks to obtain high - quality capital on the market, to meet the new basel standards. the government has the agreement of spain ’ s main opposition party for the successful passage of this legal reform through parliament. the restructuring and reform of the financial system, along with the budgetary adjustment, the public pension reform and the labour market reform, are the most urgent measures needed to restore confidence in the spanish economy, and, as such, should be passed

which is projected to fall by somewhat more than half with respect to the estimated 2009 levels. the government ’ s unprecedented austerity drive reflects the exceptional nature of the situation and the resolve to set public finances on the right track and thereby dispel the doubts which were fomenting contagion and instability. the unquestionable costs this will entail for society will be compensated by the enhanced protection from instability and by a sounder position on which to base recovery. it is thus absolutely essential to meet the new targets set, even if the macroeconomic scenario ultimately proves to be less dynamic than envisaged by the government. in the current circumstances any deviation from projections could have serious consequences for the credibility of the fiscal consolidation efforts. to ensure strict compliance with targets, monitoring and supervision procedures will have to be strengthened and contingency plans designed to ensure that targets are met and certain expenditure items are behaving adequately. the cooperation of local and regional governments is essential if the ambitious process of fiscal consolidation facing us is to be tackled successfully. the fiscal effort to be made by the spanish economy, in a situation in which the available projections point to moderate growth, is considerable, and may become even more so if nothing is done to correct the upward path of interest rates triggered by the greek fiscal credibility crisis and the contagion spreading it to other vulnerable economies. to make this effort feasible, the fiscal consolidation programme has to be accompanied by structural measures designed to strengthen the potential growth of the economy, since this largely determines the sustainability of public finances. in this respect, it is vital to correct the inefficiencies which have grown up in the labour market, since here the required reform will largely determine spain ’ s ability to become more competitive and generate employment. nor should it be overlooked that a relatively significant part of the increase in the budget deficit in the last two years is directly or indirectly related to the rise in unemployment. the priority of the labour market reform in no way detracts from the importance of pushing ahead with reforms in the product markets, particularly in the services sector, aimed at ensuring more flexible and efficient overall functioning of the economy that will permit continued productivity growth. this is a field in which numerous initiatives have been adopted and in which the policy followed in recent years has earned a good reputation. the main challenge lies in timely and rigorous implementation of the measures announced and in maintaining the pace of reform. as part of the measures needed to successfully exit the crisis and overcome