Although the growth rate of credit began to fall as from 2006, growing debt and the loss of competitiveness over the 12 years to 2008 led the external imbalance to an unsustainable position, with a current-account deficit of 10% of GDP and a strong increase in Spain’s external debt. But what counts is that Spain has since adjusted its current-account deficit at a spectacular pace. From almost 10% in 2008, the deficit fell at the end of last year to 3.7% – an adjustment of more than 6 pp of GDP in three years – and at the end of 2012 we might already be in balance. The climate of pessimism accompanying the crises leads some to underestimate the effort made by Spanish private-sector firms, suggesting that the external adjustment has been due exclusively to the fall in domestic demand. This decline naturally plays a part, but the improvement is also attributable to the relative gains in our export shares compared with other developed countries. During the years of crisis, Spain has seen its exports outgrow those of France, Italy and even Germany, and this situation should not worsen in the coming years. And not only has there been an improvement in exports, but the decline in imports has been greater than the fall in domestic demand, which also shows gains in the share of sales of Spanish products at home. Behind these improvements in the current-account balance is the significant progress recorded in the trade and services balance.
In the LTCM situation, the  1  The Fed Facility was (and remains) secured by a pledge of a substantial portion of AIG’s assets, including ownership interests in the company’s domestic and foreign insurance subsidiaries. As additional compensation for the Fed Facility, AIG agreed to issue to a trust for the benefit of the Treasury, preferred stock convertible into 79 percent of AIG’s outstanding common stock. 2  BIS Review 73/2010  Federal Reserve called together a private sector consortium made up of LTCM’s major counterparties, who agreed to rescue LTCM by investing about $ billion in new equity, in return for a 90 percent equity stake in LTCM’s portfolio along with operational control. The counterparties made this decision after the Federal Reserve encouraged them to recognize their self-interest in saving LTCM. The consortium invested in LTCM because its members came to believe that the Federal Reserve staff was right. Several years later, when the investors received back all of their capital with interest, they came to see that the Federal Reserve was right. The market conditions in September 2008 presented a very different situation to AIG’s counterparties who, in the aftermath of Lehman’s failure, found themselves facing liquidity concerns that compelled them to maintain cash on their balance sheets rather than lend to AIG. Moreover, the unprecedented size of AIG’s liquidity need – ultimately more than $ billion – could not have been met by the private sector. There is, however, one very important similarity.