I would like to stress just two ideas which may help us understand the exceptional situation we face and justify the urgency of the measures Spain needs. The first is that there is a feedback loop between the vicious circles in which the economy is caught and the contractionary forces at play. And if prompt action is not taken, these may inhibit the operation of the factors that should underpin a turnaround towards recovery. The second is that, once the worst of the crisis is behind us, i.e. when international financial markets regain stability and the world economy begins to pick up, the Spanish economy will not be able to resume growth at rates similar to those in the recent past if substantial structural changes are not addressed. This is because we will no longer be able, as previously, to resort to growing debt to stimulate domestic demand. The fiscal drive to date had been notable. This is evident in the rapid deterioration in public finances in recent months. Accordingly, in order to infuse economic agents with confidence, a strategy should be designed immediately to allow a return to budgetary stability, which was of such benefit to Spain. The current priority, therefore, is to focus on applying forthwith structural measures to promote a growth pattern with a greater emphasis on productivity, in contrast to that followed in the past 15 years. Specifically, among the aspects requiring the adoption of immediate measures are those relating to the workings of the labour market.
The high debt incurred by Spanish households and firms, encouraged by overly accommodative financial conditions but also by optimistic expectations about future income, is now acting as a drag on their consumption and investment decisions. And further exacerbating this is the dizzying deterioration in confidence which, fuelled by the global climate of uncertainty, is pushing households and firms to postpone their spending plans and to strengthen their saving. Pinpointing which specific mechanisms lie behind a certain type of behaviour of economic agents' confidence is always a complex task. But in the current circumstances, and especially in Spain, it would not be hazardous to link much of the behaviour of confidence to that of employment. The intensity with which employment is shrinking is the most distinctive feature of the recession in Spain. In this respect, it repeats traditional patterns of behaviour and shows the persistent weaknesses in the institutional structure of our labour markets that must be corrected. The best way to restore confidence in these circumstances involves a calm and realistic analysis of the problems, reasoned discussion of potential solutions and the rapid implementation of measures deemed appropriate. When faced with a severe recession, neither an alarmist overstatement of the difficulties nor well-meaning calls for confidence in a prompt recovery that will come about spontaneously, with no need for relevant measures, are of any use.