Headway is most visible in our improved competitiveness, and more incipient in the recomposition of the contribution of domestic demand to activity, or in the reallocation of productive and financial resources towards industries with higher growth potential. The Spanish economy grew slightly in the third quarter – the first rise in output since the opening quarter of 2011 – amid a somewhat more favourable external setting, and with financial tensions lifting and confidence indicators improving. As in the rest of the euro area, the coming quarters will foreseeably see a prolongation of the path of gradual recovery, which is expected in its initial phases to continue to be driven by the external sector. In recent quarters, net external demand has played a key role in sustaining activity, owing to the sound export performance, the weakness of imports and the highly favourable tourism figures. Moreover, the decline in private domestic demand is being checked as a result of the rise in investment in equipment and of the stabilising of private consumption. The adjustment in competitiveness, in its various different strands, is playing a central role. In Spain, this has been done through what is known as “internal devaluation”, the direct containment of costs and margins, not through the nominal depreciation mechanism, which  BIS central bankers’ speeches  3  was the normal device prior to our joining the monetary union. Internal devaluation is, evidently, more complicated and slower than nominal depreciation; but, in turn, the gains to be had are more durable.
Further, like the Federal Reserve and the Bank of England, it has pursued a very expansionary liquidity-provision policy, which can be measured by the sizeable increase of over 50% in its balance sheet since 2008. Among the extraordinary measures, I would highlight the long-term (as long as three years) refinancing operations; the extension of the list of assets accepted as collateral for the loans made to banks; and the launch of asset purchase programmes, such as the Securities Market Programme, the two Covered Bonds Purchase Programmes (including Spain's) and the announcement, in August 2012, of the Outright Monetary Transactions programme. More recently, in July this year, a policy of forward guidance has been adopted, involving the more accurate communication of the projected behaviour of official interest rates in the future. Yet we should remember that the capacity of monetary policy to resolve the problems at the root of this crisis is very limited. What it can do, and is doing, is making time so that other players who do have the proper tools to resolve the problems can adopt the measures needed, and so that such measures may take effect. The other European economic authorities, starting with the Commission, have – in close collaboration with national governments – taken significant steps towards correcting the weaknesses exposed in the euro's institutional arrangements. Thus, a permanent mechanism, the European Stability Mechanism, has been set up, with the capacity to provide funds to the Member States deprived of access to the capital markets.