If the institutional features behind these developments are not reformed, there is a risk that, even after the most acute phase of the crisis is over, they will continue to hold back the Spanish economy’s possibilities of recovery and become a drag on further progress in real convergence with Europe. To rebuild sound foundations for growth, economic policy should contribute to setting in place the appropriate conditions to revive confidence, to return financing flows to normal and to reinvigorate spending plans. That will require headway in restoring health to the financial position of the private sector and the banking system, the completion of the adjustment in the  BIS Review79/2009  5  real estate sector and, above all, improvements in productivity, competitiveness and job creation incentives. The correction in the construction sector is proving most intense. And although there is still a sizeable stock of unsold housing, the reduction in interest rates and in house prices will no doubt make the residential market more accessible. Cheaper borrowing terms and the easing of credit restrictions will also help breathe new life into spending. But it will be the recovery in external demand, as we move out of the international crisis, that will act as the main support. And the more competitive national production is, the more powerful this effect will be. To this end, and as frequently indicated by the Banco de España, sustained increases in productivity must be attained and the pertinent cost, margin and price adjustments made.
Decisive and effective action in boosting the knowledge economy should contribute to substantially increasing technological capital and to bridge the gap blighting the Spanish economy in this area. And improving the competitive environment in which businesses take their decisions is crucial if all these steps are to result in overall gains in efficiency and competitiveness. One key area for progress along these lines is liberalisation in the services sector, which encompasses some of the most dynamic activities with the greatest employment-generating capacity and where new forms of labour relations may be more successful. Further, the growing interaction between industry and services has increased the influence of the latter in determining international competitiveness. It is likewise necessary to continue pushing through liberalisation and competition in the network industries, so that the conditions in which inputs are provided to other productive activities allow Spanish companies to compete on an equal footing with other developed countries. The liberalising impulse must be regained, in particular, in the energy, telecommunications and rail transport sectors. I shall devote the final part of my address to analysing the situation of the Spanish banking system in greater detail. An economic environment marked by a real and financial global crisis poses a first-order challenge to the normal pursuit of banking activity. As stated, the first wave of shocks, confined essentially to the financial arena, did not have appreciable direct effects on our banks, and the indirect effects were absorbed in an orderly fashion.