The example of Germany's economic history in the 60 years since the Second World War, which may very briefly be described as 40 years of vigorous expansion and almost 20 years of sluggishness, should be food for thought when extracting all the strong and favourable aspects of decentralisation and avoiding those phenomena entailing risks to the efficient working of the economy, on which any lasting improvement in well-being ultimately hinges. Finally, another policy area to which great heed should be paid when seeking to sustain healthy public finances in the medium and long run is that of Social Security. Admittedly, the forecasts available denote a lack of major problems in the Social Security system in the coming years; however, looking further ahead, it is clear that if changes are not made, the system may become a considerable deadweight holding back growth in the Spanish economy. When the long-term consequences are taken properly into account, it is fairly clear that the sooner Social Security reform begins, the less costly it will be. Or stated the other way round, if Social Security reform continues to be delayed, we may find ourselves faced with a truly dangerous dilemma: either changes are undertaken that will have to be more drastic and may be traumatic in some respect, or otherwise growth in the Spanish economy will be seriously impaired. In sum, on viewing recent developments in the Spanish economy we can draw a positive assessment that should not disregard the accompanying imbalances.
The merits of such interventions need to be judged on a case-by-case basis. For tonight’s discussion I just want to argue that such decisions should be undertaken with the support of the democratic political system and should be implemented as a fiscal operation. Indeed, during this crisis, the UK Government has made a number of such interventions – such as the Enterprise Finance Guarantee Scheme and the Vehicle Discount or “Scrappage” Scheme. The Special Liquidity Scheme Now, as an aside, some keen watchers of central banks may want to argue that the Bank of England’s Special Liquidity Scheme (SLS) appears to have provided £ funding for the UK banking sector. The SLS, supported by a Government indemnity, was probably the single most generous liquidity support scheme introduced by a central bank during the crisis. 4 Its  2  In the past, when financial markets were less well developed, the Bank of England has played a part in selected industrial or financial market interventions (see Sayers, 1976), but that is not a role we have now. 3  The Bank of England issues banknotes of course, but these are monetary liabilities or “central bank money” which impact on the monetary stance. They are backed only by the highest quality assets, in order to maintain confidence in the integrity of the currency. 4  This was required given the relatively small capital base of the Bank of England – around £ ½ bn at end-Feb 2009.