And what has become obvious, given the present scale of public spending derived from the deterioration in employment, is that the viability of any credible budgetary consolidation strategy in the Spanish economy depends on swift and far-reaching changes to the trends currently prevailing in the labour market. Without a significant reduction in unemployment it will be very difficult to reverse the course of public spending and ensure a sustained recovery in the tax authorities’ capacity to raise revenue. The downturn in employment and the rise in unemployment are the most serious problem facing the Spanish economy, and that most hampering the recovery and fiscal consolidation. Unavoidably, then, reforms to labour institutions must be promptly undertaken that draw our unemployment rate closer to that of the more developed countries, thus checking flows to unemployment and enabling workers who have lost their jobs to return as soon as possible to an active working life. The reforms should encompass a wide range of institutions. Innovation in hiring arrangements is needed to provide for maximum job creation. We must rectify the pronounced segmentation currently characterising a labour market with a high temporary employment ratio, with most adverse consequences for job stability and for efficiency and fairness in the economy. In turn, collective bargaining needs reforming. This is so as to allow wage settlements to be tailored to a greater extent to each company and to the business cycle, but also to equip companies with the necessary flexibility to increase productivity and wages wherever possible.
But what is important is to realise that the deficit generated over these two years has a significant structural component, given that current primary public spending has maintained a high growth rate and the sizeable extraordinary revenue linked to the real estate sector has been lost for good. The deterioration in the fiscal position is manifest in a strong increase in public debt. As our own experience shows, the dynamic of rising indebtedness can prove difficult to break, especially when it is inconceivable that we can count in the future on some of the factors that significantly helped reduce debt in the past, such as interest-rate cuts and high economic growth over a very lengthy period. Overall, all these factors increase the risk that, in the absence of corrective measures, the fiscal position will continue to worsen. Further, they lead to the conclusion that the room for budgetary policy to expand has been completely exhausted, and that it is vital that a credible strategy of budgetary consolidation be adopted for the medium term. If not, the increase in public debt and its influence on the net borrowing costs of our economy, and even on the very soundness of the financial system and its capacity to properly channel resources, may become a very heavy weight holding back our possibilities of recovery. Given the fiscal imbalance that has built up, the scale of adjustment needed is most sizeable and will therefore require the adoption of highly ambitious measures on all budgetary fronts.