However, we are still far from achieving the employment levels prevailing before the crisis, given the enormous impact that it had on our labour market. Unlike in previous upturns, the growth of activity and employment is proving to be compatible with the ongoing correction of the economy’s imbalances. The more balanced and sustainable nature of the current recovery is closely related to the factors that have made it possible, some of which should be considered temporary while others may have a more persistent impact. I would like to refer to two central issues to explain this more balanced growth: the improvement in competitiveness and the normalisation of financial conditions. Competitiveness improvements One of the most important changes in the functioning of the Spanish economy since the crisis has been the recovery in external competitiveness. Cost and price adjustments have stimulated exports and have also enabled our productive sectors to compete better in their domestic markets with imports. This has led to an increase in the demand for resources, driving business investment decisions and encouraging job creation. The increase in employment, favoured by moderate wage growth, has led to a significant recovery in household consumption. Unlike in previous upswings, the moderate growth of prices and costs is helping to ensure that the increase in economic activity is not achieved at the expense of a deterioration in the external balance.
Finally, it may also be said that, from a medium and long-term perspective, population ageing exerts upward pressure on items such as healthcare, care for the elderly and, in particular, pensions. In this latter case, the reforms introduced in recent years, such as raising the retirement age, the definition of a factor of sustainability linking the initial pension to the increase in life expectancy, and the new mechanism that makes the annual revision of pensions conditional upon balance between the system’s revenue and expenses, with ceilings and floors, have  7/8  contributed to containing the increase in expenditure and to shoring up the long-term sustainability of the pensions system. That said, in the absence of increased revenues, the adjustment mechanism would rest mainly on a reduction in the average pension relative to the average wage, which is known as the “replacement rate”. With a view to the future, it would be advisable to set an “objective replacement rate”, on the basis of which system revenues should be adjusted to ensure their sustainability. It would moreover be desirable if the reform strategy chosen were to lead to an increase in the system’s transparency and a stronger relationship between contributions and benefits, maintaining automatic adjustment mechanisms that ensure financial equilibrium. Challenges for the European Union governance framework I should like to conclude with a very brief reference to the risks arising in Europe and globally too from political positions and currents of opinion contrary to globalisation and free trade.