In sum, the outlook for the Spanish economy is one of gradual recovery which will take some time to attain the dynamism proper to an expansionary phase with sufficient capacity to generate employment. The restoration of confidence, the positive effects of fiscal consolidation on agents’ expectations and the lessening of uncertainty in the labour market, further to the reform under way, will need to be the essential ingredients of any sustained recovery. The private sector must take up the baton from the public sector in support of activity, and net external demand should play a predominant role. The success of the fiscal consolidation programme is a centrepiece of this strategy. Correcting the budget deficit has become an unavoidable priority for Spanish economic policy. The budget outturn data currently available suggest the targets set for 2010 will be met, at least as far as central government conduct is concerned. On this basis, it is therefore vital to design a budget for 2011 that is fully consistent with meeting the budget deficit target of 6% of GDP for that year. To ensure no deviations arise, monitoring and surveillance procedures for the budget outturn must be reinforced and, should deviations be detected, corrective measures must be rapidly applied. The availability of contingency plans designed sufficiently in advance would contribute greatly to the success of these measures. The draft State Budget details appropriately the revenue- and spending-side measures that should allow compliance with the State target set.
In Spain’s case, the stress tests covered virtually its entire financial system and were conducted in great detail and with a high degree of transparency, providing extensive information on exposure to the principal asset classes. The results showed the system as a whole to be sound, whereby their publication undoubtedly contributed to dispelling the doubts over our financial system. The final piece in the far-reaching reform of the financial system has been the savings bank legislation approved by this House. In opening up savings banks to private capital, the legislation will not only allow savings banks to move ahead without having to request  2  BIS Review 129/2010  assistance from taxpayers, but it will also enable them to meet the demanding capital requirements set under the new international financial regulation known as Basel III. In the budgetary domain, the government reinforced and accelerated the implementation of the fiscal consolidation programme which, in compliance with Community commitments, it had announced in January. To this end, it approved a new raft of measures on 20 May entailing spending cuts of somewhat over € billion to be made between 2010 and 2011 (around 1.5% of GDP), on top of the previously approved spending cuts and tax rises. The new deficit target path was thus set at 9.3% of GDP in 2010, 6% in 2011, 4.4% in 2012 and 3% of GDP in 2013, which would steady the public debt ratio at a level slightly below 75% of GDP as from 2012.