had joined the project starting from real income levels below those of the main economies of the area. however, this process went hand in hand with the accumulation of imbalances at the domestic and european levels. the deep integration of european capital markets – one of the most remarkable features of the monetary union – resulted in a large availability of financing to those economies whose prospects were perceived as brighter. in this process, spain has become a sort of case study. in fact, the underlying fundamentals of the spanish economy were not as solid as they seemed : product and labour markets suffered from structural rigidities and the expansionary cycle was underpinned by an intense increase in credit and an overexpansion in housing, even taking into account the increasing demand generated by immigration and tourism. between 1999 and 2007, the weight of housing investment in spanish gdp doubled to above 12 %, one of the highest on record among advanced economies. to a significant extent the financing of this housing boom came from core european countries, intermediated by their financial institutions, and resulted in a rapidly increasing external indebtedness of our private sector. bis central bankers ’ speeches the corresponding widening current account deficit was not only a signal of robust internal demand ; it also reflected a gradual, but substantial, loss of competitiveness. the large increase in employment – 5, 5 millions between 1999 and 2007 ( a 37 % increase ) many of them immigrants – generated in the construction and other labour intensive sectors, interacted with the dysfunctions of the labour market, leading to very low productivity gains and increases in relative labour costs, also in the more competitive sectors of our economy. additionally, the housing boom and the economic expansion gave rise to an extraordinary increase in public revenues, providing for a significant increase in government expenditure. in fact, public accounts kept improving, so that fiscal surpluses, of around 2 % of gdp, were achieved in the years previous to the crisis. but the temporary nature of those revenues and the underlying fragility of the fiscal situation became evident when the housing sector started to adjust. as a result of this adjustment and the depth of the crisis, the surpluses have turned into large and persistent deficits, reaching – 11 % in 2009, a shift of more than 13 percentage points of gdp in just two years. could this build - up of imbalances have been avoided or mitigated? with hindsight, no doubt it could, but the economic and policy incentives were not there at the right time.

miguel fernandez ordonez : financial integration and stability in europe opening remarks by mr miguel fernandez ordonez, governor of the bank of spain, at the conference on " financial integration and stability in europe ", organised by the bank of spain, the european central bank and the center for financial studies, madrid, 30 november 2006. * * * good morning ladies and gentleman. first of all, allow me to welcome you. we are really delighted to host this conference at the banco de espana in madrid. some of you are perhaps too young to remember, but it was here in madrid, in 1989, that the european council decided to embark on the first stage of economic and monetary union, as envisaged in the delors report which was the catalyst for the emu process. i would like to start my intervention today with a quote from the delors report ; a quote that refers to financial integration. simplifying, it said the following : the objective of a single financial area, in which all monetary and financial instruments circulate freely, and banking, securities and insurance services are offered uniformly throughout the area, would be fully implemented through the approval and enforcement of the necessary community directives. you can appreciate the appealing simplicity of its definition of an integrated financial market : one where all monetary and financial instruments circulate freely, and where banking, securities and insurance services are offered uniformly. nevertheless, the word “ uniform ” might sound a little strange to us today, when we prefer to use softer terms such as “ convergence ”. but of course mr delors was not thinking about uniformity of the services themselves, but rather about the need to ensure that they could be offered and accessed on an equal basis across the eu. but what it is remarkable is that mr delors was referring to the steps that should be taken in stage one of emu. he expected the integrated financial market to be in place at the beginning of the emu process, before going to the subsequent stages. almost seventeen years have passed since stage one was launched. and we entered stage three almost eight years ago. emu has proved to be a successful reality, but the single financial area as defined in the delors report has not yet been fully achieved. of course, there has been impressive progress in some areas, for instance, the european money markets. and there has been good progress in others, like corporate bond markets and government bond markets. in some fields, however, we are a long way from