Both the Spanish economy and its banking system suffered and continue to suffer from the coincidence of these three high-intensity crises, any of which may return at any time, since the economy moves in waves. But it appears highly unlikely that the conjunction of three such crises could recur for many years. The challenges Spain had to face at the onset of the crisis were enormous. Public attention has focused on cutting the budget deficit, but the tasks of reducing the towering debt accumulated by households and firms, and that of regaining lost competitiveness within a monetary union are also huge. A Latin American colleague used a metaphor which, while exaggerated, clearly expressed the difficulty ahead of Spain: “regaining competitiveness”, he said, “is like painting a house. If your brush is the exchange rate and it is flexible, you simply let it move from the top downwards. But since in Spain you’re in the euro and you can’t move the brush, all you can do is move the house upwards from below”. The task is an arduous one but not impossible if we believe that, though it is very difficult, we are capable of changing and reforming. This is why I shall begin my speech with an optimistic message, offering you some examples showing how Spain has already progressed with some adjustments and has undertaken major reforms during the difficult times we have faced during these years of crisis.
We want our monetary and financial systems to be stable, not only throughout the economic cycle, but also across cycles. And what we also share is that we are still very much uncertain about how to achieve this goal perfectly. One, rather harsh expression of this uncertainty of ours, is the adage popular among some policy-makers. As financial stability is hardly a quantified (or maybe even quantifiable) goal, some in the community grumble that central banks targeting inflation are delivering price stability, while central banks targeting financial stability are delivering just financial stability reports. Yes, this is really a bit too strong statement, as we all know, explicitly or implicitly, that the banking sector faces a trilemma – or an impossible trinity of a kind, if you will. Banks can never be simultaneously: 1.  perfectly safe,  2.  perfectly efficient and  3.  always free of moral hazard  It is like in the area of public health care. This complex system also cannot simultaneously achieve three goals perfectly and be: 1.  cheap,  2.  of the highest quality and  3.  universally accessible to all without entry barriers  In the banking sector – like in the area of health care – we can either abandon one principle in order to achieve the remaining two more or less perfectly, or we have to balance all the three principles somehow, but all of them will be achieved and maintained only partially, imperfectly (and sometimes deeply imperfectly).