During this time, the Spanish economy has been radically modernised in many other areas, through the adoption of regulatory frameworks and measures comparable to those of the most advanced economies, such as the removal of barriers to trade, the liberalisation of certain sectors, privatisations, etc. However, our labour market, which is characterised by the very high levels of unemployment  4  BIS central bankers’ speeches  generated during crises and also by its inability to reduce unemployment rates during upturns, has retained the same institutional structure with no substantial changes for 30 years. The cost for workers of this resistance to reform has been insecurity both for the unemployed and for those who have jobs but fear losing them. The insensitivity of wage growth to the cyclical situation and to productivity generates numerous perverse effects. First and foremost, the adjustment to shocks is borne entirely by employment. But also wage growth in some sectors or firms may be lower than it would have been if more flexible labour institutions had allowed productivity gains at the firm level. This is what one observes when the situation of Spanish workers is compared with that of workers in those European countries that have the highest levels of flexicurity. For all these reasons, as I have so often said, Spain’s labour institutions must be reformed in order to lay the foundations for employment creation and for reducing unemployment from its very high current level to one similar to those of other European countries.
It is quite different in another country where the problems are confined to small institutions, where the ultimate aim should not be their survival in order to avoid a serious interruption in the flow of credit, but rather their removal as soon as possible at as little cost as possible. Indeed, some of the biggest developed economies witnessed, at the onset of the financial crisis, how several of their leading banks were collapsing. This was because, in addition to  BIS central bankers’ speeches  3  the sudden downturn in the value of their assets, they saw the short-term funding channels on which they relied so heavily disappear. Given this scenario, the logical and no doubt inevitable reaction was to swiftly inject huge amounts of public money. Yet in Spain’s case, there was overall excess capacity in the sector and the problems were at a group of small or medium-sized institutions with a reasonably long-term financing structure. All told, the advisability of earmarking public funds to these institutions immediately was much less evident. On one hand, it is not surprising that ailing institutions should apply for public aid, if possible without conditions. But the mission of the authorities is to look out for the general interest, setting conditions for this aid that ensure the adjustment and restructuring of the sector and the creation of new, stronger and better managed institutions, of a sufficient size to gain access to wholesale funding, thus enabling them to channel funds appropriately to the economy as a whole.