These included the stress testing and recapitalisation of troubled banks; the identification of troubled real estate assets and their transfer to SAREB (Spain’s “bad bank”); and the reform of the savings banks. At the same time, actions and reforms at European level, including monetary policy (longer-term refinancing operations, LTROs, asset purchase programme, APP) and the move towards banking union, have ensured liquidity and strengthened confidence in Europe’s monetary and financial system. Financial reforms were accompanied by a series of reforms to labour and product markets and to the public sector. The 2012 labour market reform gave priority to collective bargaining agreements at firm level over those at sectoral or regional level. Reforms to product markets, including the law on market unity, have sought to reduce regulatory obstacles to firms’ growth, although implementation has been challenging. The Spanish economy has rebalanced as far as “flow” variables are concerned, while “stock” imbalances are gradually correcting. Banks’ asset quality and solvency has substantially improved, as reflected in higher capital ratios and a steadily declining ratio of non-performing loans (NPLs). The NPL ratio of Spanish banks has more than halved from 13.6% in 2013 to 6.4% now and continues to fall steadily. The banking sector has been able to finance growth with new loans while steadily deleveraging as legacy loans mature. Private sector debt has fallen considerably. Deleveraging of firms and households is well under way, with debt having declined by almost one-third since 2012.
There are some reasons for the deviation between “felt” and measured inflation after the cash conversion. For example, price increases occurred particularly in the case of frequently bought goods and services usually paid for in cash. Such prices are more strongly “felt” than prices for products which are only bought from time to time, for example, cars or computers. It is also possible that consumers are still comparing current euro prices with prices in the national currencies before 2002. This “frozen price memory” leads to distorted comparisons. It also needs to be taken into account that the introduction of euro cash in January 2002 coincided with increases – caused by external factors – in energy and food prices and in indirect taxes. They were not at all related to the euro. In the public perception, however, they were associated with the cash changeover. Institutional foundations of the euro Many observers did not think the ECB could ensure price stability and anchor inflation expectations. Indeed, the ECB is a young central bank which, together with the national central banks in the Eurosystem, has assumed responsibility for a new currency, the euro, in a new economic and currency area, the euro area. Therefore it could not be taken for  2  BIS Review 16/2009  granted that the euro would be able to establish itself so quickly as a stable and internationally recognised currency. This was only possible because the ECB and the national central banks of the Eurosystem have solid institutional foundations.