Greatly increased financial openness, in part associated with EU membership, has made the UK financial system larger, more complex and more exposed to shocks from abroad. These developments reinforced domestically generated vulnerabilities in the run up to the Global Financial Crisis. The UK, along with many of its main international partners, lacked the institutions and tools for managing and addressing them when they crystallised. As a result, when the crisis hit, global shocks were transmitted virulently across borders, doing great damage to the financial systems and real economies of many countries. The UK was particularly affected given its high degree of financial openness. Most recently, challenges arising from European Monetary Union (EMU) have been particularly evident. Our ties are close. 40% of our exports go to the euro area, and major UK-owned banks have financial exposures to the euro area totalling almost twice their capital, worth a quarter of UK GDP. These figures underscore the importance to the UK of further building the resilience of the euro area as part of a strengthened European Union.9 In this regard, the progress made in recent years is particularly welcome. Nonetheless, as highlighted in the European Commission’s “Five Presidents’ Report”, the euro area remains “unfinished business.”10 Actions to complete European Monetary Union should be taken with regard to their impact on all members of the European Union. From the Bank of England’s perspective, steps to ensure financial stability for those within the euro area should not impede the achievement of financial stability for those without, including the United Kingdom.
With a view to strengthening economic growth in the long term, one objective of economic policies in the immediate future must therefore be to provide the education system with mechanisms enabling affected students to obtain the qualifications necessary, despite the lack of face-to-face education. As regards the employed who have lost their jobs, it is essential that the income-support measures be complemented by active policies that prevent a loss of working skills and foster the acquisition of new ones. In this respect, it is important to note that the effectiveness of active labour market policies has traditionally been an unresolved issue in Spain. International experience shows that one way of reinforcing the effectiveness of public employment services is to equip them with the skills to provide individual guidance. For those who keep their jobs after this crisis, various initiatives geared towards improving their productivity can also be conceived. First, it is desirable to apply formulas to counter the potential cuts to training expenditure that firms may make in the short term to address their liquidity needs, given the adverse impact that such cutbacks would have on aggregate productivity further down the road.