At the moment, although the European and US government bond markets are of comparable size, the non-government bond market in Europe is ‘only’ a third to half the size of that in the US; and much of that is bank issued debt. I would expect the euro corporate bond market to develop significantly in the medium term. And with it, I would expect to see other product markets develop, as they have elsewhere (in the UK, but especially in the US) – for instance markets for asset backed securities and commercial paper. As part of this I think we will see a trend to greater issuance at the lower credit end of the market (or ‘high yield’, as it is politely named). In the euro area around 70% or corporate bond issuance is by issuers  3  BIS Review 43/1999  rated Aa2 and above. In the US, it is around 30%. I would expect that gap to close a bit, and I think there are already signs of life in the European high yield market. While I am on the subject of European bond markets, I would like to make just a few remarks about the proposed EU withholding tax. The stated objectives of the scheme – reducing tax evasion and reducing structural unemployment – are clearly desirable ones. But in thinking about any kind of withholding tax a judgement has to be made about the trade off between the efficiency of tax collection and the efficiency of capital markets.
Real GDP growth has decelerated in 2018 compared with the growth we have seen since the second half of 2014. This slowdown mainly reflects weakness in net trade. Looking forward, global protectionism and weakening conditions in emerging markets represent further downside risks to growth. Internally, the present low savings rate of Spanish households and the need to restore savings in the near term, points to moderation in consumption going forward. Let me point to the three main challenges that the Spanish economy is facing at present, in my view. The first relates to the process of fiscal consolidation. While well advanced, it is still incomplete. The government deficit ratio is still the highest in the EU and it needs to be further reduced to bring the government debt ratio on to a downward path. In fact, adequate buffers need to be rebuilt now, in times of solid growth and favourable financing conditions. This would enable fiscal policy to support the economy in the event of any future shock. Secondly, unemployment remains very high, as does the share of temporary employment. Spain’s unemployment rate remains well above pre-crisis levels and is roughly the double of the euro area rate. This situation calls for further reforms to address the duality of the labour market and more effective active labour market policies to re-integrate young people and the long-term unemployed. Finally, productivity remains low and needs to be raised to maintain economic growth and enable sustainable wage growth.