The lack of clarity about the capitalization plan announced for the Spanish banking industry, its difficulties to meet the fiscal targets given the gloomy growth outlook and its impact on its sovereign debt are still cause for concern. Similarly, apprehensions have increased about other countries in the region, such as Italy, because of the bulk of its public debt and its slow growth. The coupling of risk premiums in Spain, Italy and France provides evidence of this risk. Also possible is a reversal of current tensions, for instance if there are agreements favoring compliance with the adjustment measures agreed or new announcements of support by economic authorities in the zone, 4  BIS central bankers’ speeches  that could buy time to advance in the necessary structural changes. The outcome of yesterday’s elections in Greece where the winner was the political option whose program is more in line with the country staying in the Eurozone, mitigates somewhat the eventuality of a Greek default triggering a crisis in the rest of the Eurozone. However, it is still premature to draw any conclusions. But undoubtedly the coming days will bring important news and we must be watchful of its effects on our economy. Additionally, other events will bring new information. More detail about the capitalization plan of Spain’s banks and the EC meeting later in the month may shed some light on new bailout measures. Other risks have to do with world growth prospects beyond the Eurozone.
We have built economic institutions that allow us to reach substantial levels of growth, and the necessary tools to mitigate any adverse shocks facing our economy. But we are not immune. In the globalized world of today, any change in conditions is rapidly propagated to other economies. The movements in financial markets that I mentioned a while ago are proof of this. Trying to isolate ourselves from the rest of the world would be not only useless, but harmful in the long run. The important thing is for us to have the capacity to shield ourselves from negative events and, when necessary, to take action to reduce their effects on our country. We already did so when the Lehman Brothers crisis hit in 2008. We couldn’t prevent the global recession from affecting our economy, but we did succeed in fostering a fast, sustainable recovery from 2009 onwards. In any case, our domestic macroeconomic situation has varied in these four years. Today, inflation is at 3 percent, GDP is growing at near-trend rates and the MPR is in a neutral range. This provides room to respond with monetary policy if necessary, although the timing and magnitude of the measures will have to be evaluated with special prudence and in light of the actual effects of external developments on our economy. Our financial system, meanwhile, has been solid and resilient to sudden changes in the international economy.