More encouraging is the principle of better late than never, and the important thing is that Spain initiated the process of bank restructuring, now nearing completion, in 2009, that significant measures to reduce the budget deficit began to be adopted in May 2010 and that an ambitious labour-market reform was introduced in February this year. Spain has proven itself capable of making adjustments and reforms and this is essential to restore long-lasting upswings and sustainable growth. But this reassurance must not lead to complacency. What we have done so far, despite its huge importance, is not sufficient. And some of us have the thankless task of pointing this out. For example, when each financial reform has been approved it has always been argued that the result will be more credit, but although bank restructuring is certainly an absolutely necessary condition, we have always seen that it is not sufficient by itself to make credit flow again. We have to restructure the financial system so that, as in any process of industrial adjustment, the resulting banks can generate a healthy profit and be sufficiently solid to meet demand when the adjustment process is complete. However, credit will not improve until solvent demand increases. Hence the importance of other economic reforms to boost consumer and investor confidence, such as reducing the budget deficit and reforms, such as the labour-market one, to increase the economy’s growth potential.
Undoubtedly, the most significant effect of the global crisis on our banks was the fact that the path of gradual adjustment of imbalances that Spain had undertaken and which until then was the scenario shared by all analysts and national and international organisations, suddenly turned into a collapse of all macroeconomic indicators. That obliged banks and savings banks to accelerate the clean-up of their balance sheets and to set in train what has ultimately become a full-fledged industrial restructuring of the Spanish banking system. 2  BIS central bankers’ speeches  The toolkit at hand, which had been successfully used in the past, was not up to facing a crisis of this nature. The legislation on bank resolution had not been adapted to the demands of the Monetary Union, in particular to the prohibition of monetary financing, and nor did it envisage that it was savings banks that would essentially need to be repaired. Moreover, the singularity of a systemic crisis, on a global scale and with absolutely unrestricted capital movements, made it impossible to make creditors take haircuts without running the very serious risk that market alarm would ultimately lead healthy institutions to sink. Our main strength – one by no means insubstantial – was that the large credit institutions were reasonably sound and that the problems were concentrated in a clearly defined group of small and medium-sized institution.