these are only legally binding as from the 2008 budget. also, from the standpoint of their contribution to long - term growth, the role of the territorial governments in managing the public spending items of most relevance for improving the spanish economy's competitiveness acquires considerable importance. illustrative of this point is the fact that the territorial governments are responsible for more than 90 % of public spending on education. as regards supply - side policies, the main thing is to bring about an improvement in the capacity of the economy, its agents and its markets to adapt, which enables them to respond flexibly to a changing and highly competitive environment. better supply - side functioning would help square the continuation of the current strong employment generation with the attainment of productivity gains. the national reforms plan lays down a series of measures geared in this direction, and they should be resolutely applied. moreover, there are areas such as the labour market where it is still necessary to push through reform measures to increase flexibility and efficiency, harnessing the current good times to adopt reforms that will prevent a cyclical change from causing job destruction as occurred in the past. the picture that emerges from the recent information i have set out is that of an economy which continues to show signs of high dynamism, with the prospect of this continuing - with somewhat less momentum - in the coming years. yet this favourable situation prolonging an exceptionally long upturn should not be understood as signifying the absence of problems in the medium term. on the contrary, over a longer horizon the spanish economy will have to face major challenges in competitiveness, productive efficiency and the flexibility of the markets for goods, services and factors. integrating new labour force entrants into the labour market will have to be compatible, moreover, with improved productivity. in this connection, it will be necessary to better incorporate technical progress and innovations into business and general government activity, and to enhance human capital skills. likewise, prospective demographic developments will pose significant demands in respect of pensions and protection in situations of dependency. this will all call for further policies geared to re - balancing the sources of growth and stepping up the reform agenda in order to dispel the risks that are emerging and to ensure the continuity of the ongoing improvement in well - being in the medium and long - term.

i chaired a special session of such a discussion earlier this year because i am personally committed to improving that dialogue. we look forward to working with other institutions, including the world bank and the international monetary fund, to assist other supervisors in their journeys as they come to their own crossroads for banking supervision. conclusion in my remarks this morning, my intention was to offer more insight into why the basel committee believes that basel ii is such an important step in embracing a new, incentives - based approach to supervision. i also wanted to discuss how it will keep our supervisory framework up - to - date with the latest advances in risk measurement techniques and risk management practices. in my answers to the sensitive questions that i have heard from bankers and policymakers in other countries, i have sought to emphasise that the basel committee seeks the appropriate balance for basel ii between developing simple rules while maintaining their sensitivity to a bank ’ s actual underlying risks. we intend to align basel ii ’ s capital requirements more closely to banks ’ actual economic capital needs. consequently, we do not think that aligning the regulatory framework to banks ’ contemporary risk measurement techniques will make lending patterns more volatile. nor do we think that it will harm competition or dry up capital flows into emerging market countries. the committee has worked to ensure that the new framework contains sufficient options and simpler forms of rules so that its basic principles can be applied to many kinds of banking organisations in many countries. basel ii presents an excellent opportunity for emerging and developing markets. by stimulating banks to upgrade and improve their systems, business models, capital strategies, risk management systems and disclosure standards, basel ii should improve their overall efficiency and ability to compete globally. it will help to reduce the risk premiums of emerging and developing markets and will help to ensure the stability of the financial system. still, it is clear that, to accomplish all of these intentions, the new capital framework will be a very different approach to supervision than what we have known so far. it will require hard work on all of our parts. bankers must work to ensure that their risk management systems meet the standards to qualify to use the more sophisticated measures of risk. for our part, supervisors must ensure that we are comfortable with banks ’ progress. but we must also be ready to supervise a more comprehensive capital framework. we will need to share information on the issues we encounter in moving from the 1988 accord to the three pillars of the new framework. we will need to compare notes on the advances our banks are achieving in measuring and managing