In this climate of nervousness, the high levels of private-sector debt, the need for balance-sheet write-downs in the financial sector and the difficulty the economy faced in growing at a sufficiently high level all weighed on the perception of the sustainability of our public finances. Moreover, the banking system, which had negotiated the first wave of the international financial crisis without excessive difficulties, came up against bigger problems when the main elements of the underlying macroeconomic crisis began to be felt at banks. Combining with this was the tightening of financing conditions for credit institutions raising funds abroad, as a result of the prevailing instability on financial markets. Faced with all these circumstances, it was vital to firmly show that matters could be turned around and that Spain was not bound to follow the path of instability of other countries. To do this, the change in economic policy stance last spring was essential, since it demonstrated a willingness to react to and redress the imbalances. Given the source of the tensions, the priority was to right the trajectory of public finances. To this end, an ambitious fiscal consolidation plan was approved in May last year. It brought forward the bulk of the adjustment to be made to the years 2010 and 2011. In parallel, there was a patent and pressing need to tackle the labour market shortcomings that were hampering the absorption of unemployment and the adjustment of the economy. Hence a labour market reform was launched.
Fiscal sustainability also needs the economy to swiftly restore its dynamism and to achieve a high potential rate, since this is a fundamental means of financing the public spending increases to which population ageing is inevitably going to lead. The proposed pension  BIS central bankers’ speeches  3  system reform submitted by the government in January this year is also a key step towards curbing these costs. The financial markets have understood that this reform strengthens fiscal sustainability, so it would be advisable to set this proposal down in the form of legislation as soon as possible. Further, the sustainability to which the reform refers should be specified, so that a procedure is in place to ensure at all times that pensions growth is on a sustainable path. On the financial front, further headway in restructuring the banking sector has been made in 2010 and in 2011 to date. The most significant regulatory step here was the creation, in 2009, of the Fund for the Orderly Restructuring of the Banking Sector (FROB). The FROB has proven most useful in paving the way for merger and integration processes in the savings bank sector, which was highly fragmented. As a result, the number of institutions in the sector has fallen relatively quickly from 45 to 18. In those operations that received funds from the FROB, the institutions concerned submitted restructuring plans that envisage reductions in the number of offices and in other operating expenses.