In Spain’s case, the stress tests covered virtually its entire financial system and were conducted in great detail and with a high degree of transparency, providing extensive information on exposure to the principal asset classes. The results showed the system as a whole to be sound, whereby their publication undoubtedly contributed to dispelling the doubts over our financial system. The final piece in the far-reaching reform of the financial system has been the savings bank legislation approved by this House. In opening up savings banks to private capital, the legislation will not only allow savings banks to move ahead without having to request  2  BIS Review 129/2010  assistance from taxpayers, but it will also enable them to meet the demanding capital requirements set under the new international financial regulation known as Basel III. In the budgetary domain, the government reinforced and accelerated the implementation of the fiscal consolidation programme which, in compliance with Community commitments, it had announced in January. To this end, it approved a new raft of measures on 20 May entailing spending cuts of somewhat over € billion to be made between 2010 and 2011 (around 1.5% of GDP), on top of the previously approved spending cuts and tax rises. The new deficit target path was thus set at 9.3% of GDP in 2010, 6% in 2011, 4.4% in 2012 and 3% of GDP in 2013, which would steady the public debt ratio at a level slightly below 75% of GDP as from 2012.
Indeed, the tensions were amplified by the weaknesses of European institutional arrangements and by the prevailing doubts over the willingness and ability of national governments to tackle the structural and budget deficit problems of their economies. Evidently, the Greek crisis has highlighted the incapacity of the Stability and Growth Pact and, more generally, of the European economic governance framework to prevent the excessive build-up of imbalances and to pursue timely corrective action. As you know, the European authorities have reacted to this need by initiating a deep-seated review of European governance mechanisms, some of the results of which are already coming to light. It can thus be said that as a result of this crisis, economic policies and, in particular, the fiscal policy of the EU Member States, will be subject henceforth to closer and more detailed  BIS Review 129/2010  1  control by the European institutions so as to anticipate and forestall inconsistencies and imbalances. Any build-up of the latter will ultimately entail major costs not only for the countries concerned, but also for the European single currency project. Further, attributing events exclusively to market excesses would mean ignoring the importance of the effects of the decline in activity and employment, of the deterioration in public finances and of financial systems on the possibilities of recovery, and the major economic policy challenges posed thereby, most particularly in the fiscal realm and in the field of structural financial reform.