As can be seen, profitability, measured both in terms of RoA and of RoE, is above the European average. If we analyse average efficiency, we see that Spanish banks clearly have lower management expenses in relation to their revenue than their European competitors, particularly those in the core euro area countries. Regrettably, these strengths do not change our position relative to the comparative average levels of solvency. Admittedly, supervisors are always applying pressure in relation to capital levels; that is our mission. Banks usually protest about this growing capital requirement which, as the most widespread complaints have it, appears to be never-ending and may lead to credit being  5/15  squeezed. Reference is also made, with some justification, to the low density of many European banks’ risk-weighted assets, owing to a more extensive use of internal models. I have indicated on more than one occasion that our banks have comparative strengths. For instance, we are in a better position in terms of leverage when set against the industry average in Europe; moreover, the low use of internal models by Spanish banks enables the volatility of capital requirements to be reduced, while in turn keeping our banks unaffected by the introduction of the Basel III “Output floor”. Nonetheless, I do not share the rest of the analysis of the sector. I would point out that a high level of capital is neither a weakness nor a disadvantage.
In the baseline scenario of this Report, the sum of the effects of the catastrophe, the changes in conjunctural data and other specific elements shapes a scenario where inflation will converge to 3% sooner than was forecast in December. The change in the medium-term inflation scenario is determined by the effects of the earthquake and tsunami on productive capacity and by the persistence and magnitude of a potential contraction in private consumption. In the baseline scenario, annual CPI variation will exceed 3% in the second half of this year, standing around 4% for a few months. It will later fluctuate around 3% through 2011 until the end of the relevant projection horizon, which is currently the first quarter of 2012. Annual CPIX1 will show a more gradual convergence to 3% (table 2). All this within a substantially more uncertain setting than before. This scenario rests on other working assumptions. First, it is assumed that in the long term the real exchange rate (RER) will be similar to its current level. This assumption is made considering that, with the nominal exchange rate and parities prevailing at the statistical closure of this Report, the RER is consistent with its long-term fundamentals. Another working assumption is that inflationary pressures from the labour market will generally not experience any significant change with respect to current indicators. Finally, the external scenario will continue to add momentum to the economy and imported inflationary pressures will remain contained.