rate regime can, on its own, protect an economy from financial crises if it is not accompanied by appropriate and coherent policies. a second reflection is that the presence of and adherence to a legally sound, open and stable institutional framework that is respectful of creditors'and debtors'rights is the only way to generate the confidence and support of international financial markets in such a way that domestic saving shortfalls may be financed. my third reflection considers the need for clear, credible criteria beforehand as to how to distribute the costs of crises. such criteria should strike a balance between both domestic and foreign private creditors. coverage of the shocks experienced by the international financial system last year would be incomplete without some reference to the set of shortcomings highlighted in the so - called enron case, which goes beyond the particular scope of this company and reveals weaknesses of a more institutional and systemic nature. these events were significant since they showed that, even in economies with more sophisticated institutional arrangements, some types of conduct with great destabilising potential may occur. the enron case was important not only in quantitative terms but also, and especially, in qualitative terms, witnessing a series of legally dubious practices which go beyond the strictly financial field : conflicts of interest, serious corporate governance shortcomings, excessively ad - hoc accounting practices deviating from prudential principles and from what is a fair view of the real economic situation, manipulation of information, etc. and all this set against the inoperativeness of the internal and external control mechanisms of the company. we have thus been faced with a broad litany of serious problems affecting many of the institutional requirements and elements that are so vital for maintaining confidence, for the efficient allocation of resources, for the orderly working of any financial system and for the effective supervision thereof. i shall return to these matters later. but let me first say that, faced with the above - mentioned multifarious shocks, the international financial system showed a capacity for resilience that should be viewed as highly satisfactory. it is not easy to assess which factors have contributed to increasing, and to what extent, such resilience. among them, however, mention should be made of the following : the priority given to stability by many monetary and fiscal authorities during the preceding long expansionary phase ; the improved workings of more integrated and better informed international financial markets with increasingly flexible trading systems ; the high levels of solvency, via own funds and provisions, attained by banks during the previous upturn,

. 8 % in 2001, clearly above the figure of 1. 5 % posted in the euro area. the maintenance of high job creation rates during 2001, set against the slowing trend marked by general developments in the economy, and the favourable financial conditions in place contributed to sustaining household income and helped underpin consumer spending and residential investment. however, the declining course of investment in capital goods steepened in the face of heightening uncertainty, worsening expectations and slowing final demand, which the generous financial conditions were unable to offset. the effects on activity were reinforced by the fall in the growth rate of exports as from the early months of 2001. in any event, the trends apparent at the beginning of the year 2002 ( namely greater growth in the economy in quarter - on - quarter terms but with something of a loss of steam in job creation and in consumption, accompanied by a check on the rate of decline of investment and continuing sluggishness in exports ) are consistent with a scenario of gradual recovery, but fail to dispel the uncertainty over its intensity and scale. the profile of the spanish inflation rate during 2001 was similar to that in the euro area as a whole, albeit maintaining a positive gap. after rising in the opening months, in the wake of dearer food and energy product prices, inflation dipped appreciably in the second half of the year, largely due to the course of oil prices on international markets. at the end of 2001 it stood at 2. 7 % in year - on - year terms. however, the initial data for 2002 have shown a more marked rebound in the 12 - month growth rate of consumer prices than that recorded in the euro area as a whole, due partly to temporary factors that should be reabsorbed in the coming months. of concern to us is the persistence in the spanish economy of inflationary biases reflected in the inflation gap with the euro area, especially when they are manifest in the behaviour of unit labour costs. i shall refer to the risks this entails later. the change in the cyclical pattern of the spanish economy as i said at the outset, these features of the recent slowdown in the spanish economy have shown up a different pattern of behaviour than that followed in previous cycles. the factors accounting for this change are related both to the conditions of greater macroeconomic stability attained by the spanish economy in its convergence towards and integration into the euro area, and to the progress made in terms of structural reforms. these factors have had a bearing