Specifically, in our case, they do not always draw a distinction between regional and central governments, or between the government and the opposition. What they see is, simply, Spain. Taking these lessons on market behaviour to heart is very important for all countries, but all the more so in a country such as Spain which, owing to the systematic and growing build-up of current account deficits since 1996, has had to resort to external financing. Accordingly, it is vital to transmit confidence to those who finance us. We’re now moving in the right direction. In the space of three years we’ve moved from a current account deficit of around 10% of GDP to one below 5% this year. And in the case of the budget deficit, we’ll see a decline from over 11% last year to 6% next year. Once the adjustment is over, the Spanish economy will once again outgrow the biggest economies in the euro area, as foreseen by most international institutions. Yet we should not be complacent, but carry on pushing structural reforms through. You’ll have noted that the markets behave like people: sometimes they give reasonable advice, sometimes they do so late, sometimes they make mistakes, and sometimes they have a short memory. And they waver between greed and fear, depending on whether they’re preoccupied with returns or with risk. We’re now witnessing a “flight from risk”. But you’ll no doubt recall the frenzied “search for yield” on financial markets worldwide in the decade prior to the crisis.
True, during the expansionary phase, private-sector debt grew at very high rates, although it should be clarified that the growth in asset prices – unwarranted by fundamentals – was less than in other countries. Yet during these three years the Spanish banking system has proven reasonably resilient; only two small entities had to be taken under central bank control, and the volume of public aid made available was very small compared with the public resources earmarked to this end in other countries. The explanation for this different outcome in apparently similar situations must be sought in the quality of banking regulation and supervision, and in the retail banking-based business model of banks in Spain. What happened was that the countries which saw their banking systems collapse were largely those which, in the preceding years, had most vigorously defended the benefits of a “hands-off” government approach to the functioning of the financial sector. This was quite the opposite of the approach of the Banco de España, a central bank that took to heart the lessons of the serious banking crises of the 1980s and early 1990s in Spain. BIS Review 171/2010  1  Until the crisis erupted, the prevailing doctrine had advocated light-handed regulation, considering both our supervisory approach and our banking system’s business model, centred on traditional banking activities, as outmoded. But in the wake of the crisis, the pendulum has swung. Now the predominant approach in financial regulation has gone to the other extreme.