I should like to begin by thanking Mr. Saito, the President of the Japan National Press Club, for his words of introduction and for the opportunity to be here today in this great institution of journalism of this country.
This is my first visit to Japan, and today marks my first official event in Japan. Making this speech today means that all the Presidents of Government of my country since 1981 will have addressed the Japan Press Club, which gives you an idea of how much importance I attach to this forum.
I should like to share with you my vision of the economic situation, which is a topic that is of great concern to the Spanish people and for everyone and I can assure you that it is for me as the leader of my country.
I shall also set out for you the measures that we are promoting so that the Spanish economy emerges stronger from the crisis.
With this, I hope to contribute to the understanding of my country's reality, and its vast potential. Greater understanding that should also serve to strengthen relations between Japan and Spain.
Spain and Japan, two stories of economic success
If we consider the important developments that our societies have experienced in recent decades, Japan and Spain, without a doubt, constitute two success stories.
The development and progress of the Japanese economy are well known. It is the world's second largest economy, which is an achievement gained through a major technological development effort and human capital. Thus, the investment in R&D over the GDP is almost double that of the EU average and the figures for those entering higher education are amongst the highest in the world.
Spain's achievements, although less well known, are also significant.
Coinciding with the democratic period, the Spanish economy has quadrupled its GDP and has risen to become the ninth biggest world economy.
It has been a transformation process that has enabled welfare levels to be raised with a GDP per capita above the EU average and close to that of Japan.
It is a process that has been harnessed with technological development and the improvement in training and of physical capital.
In the last 30 years, investment in R&D has multiplied by 10 to stand at 1.35% of our GDP, with particularly significant growth in the last 4 years. And we have been improving with regard to the practical application of research, having become leaders in sectors such as biotechnology, aerospace, IT technologies and renewable energies.
Spain is one of the OECD economies that has most increased its figures in regard to tertiary education: currently, 40% of our young people have completed higher education studies.
And in the most recent expansive cycle, investment in infrastructures in terms of GDP has almost doubled that of the EU average, which has made us leaders in the EU with respect to the network of highways and motorways and in kilometres of high-speed trains. In this same period, the investment our companies have made in equipment has also doubled the European average and has enabled companies to modernise productive capital.
This development has also come hand in hand, as it should be, with an important process of internationalisation.
In commercial terms, we are the second most open economy amongst the major European economies. And in terms of direct foreign investment, we rank in ninth place as an issuer and sixth in the world as a receiver.
So, we have world-leading companies in sectors such as agri-food, textiles, renewable energies, tourism, management of infrastructures, telecommunications and finance.
And it is the presence of a growing and internationalised business fabric that explains why Spain has managed to maintain its global market share of exports, despite the solid expansion of emerging countries over the last decade.
World economic situation
But today, all countries are facing a common challenge: to consolidate recovery and get back on track towards sustainable growth following the worst economic world crisis in more than half a century.
The actions agreed within the framework of the leaders of the G-20 constitute the greatest effort of world economic coordination since Bretton Woods.
Spain is grateful for having been able to take part in that forum and to have had Japan's support to consolidate its attendance there.
Those countries who were there have responded dynamically to the various phases of the crisis.
Initially, we were acting to avoid the collapse of the financial markets and to return their operations to normal.
Later, at the toughest point of the recession, we drew up public stimulus programmes for businesses whilst endeavouring to avoid protectionist measures.
And now, in the most recent phase of the crisis, we are adopting a strategy to withdraw the stimuli and fiscal consolidation.
All of that has contributed to an improvement in the economic prospects for 2010 and 2011.
It is a recovery led by the emerging and developing economies that has been seen to be accompanied by a modest but constant recovery - in the words of the IMF - in the majority of the advanced countries.
But we must recognise that it continues to be a recovery subject to uncertainties, both from the threat of an escalation of financial turbulence and the possible effects on businesses that the fiscal consolidation of developed countries may have.
Therefore, in order to strengthen this growth, it is essential to maintain the global reform process that we are carrying out in the framework of the G20.
In particular, at the meeting in Seoul in November, we undertook to complete the process of the reforms of the world financial system and international financial institutions.
And we have to continue to make progress within the common framework of reforms in order to eliminate obstacles to trade, improve productivity and reduce global imbalances.
These global reforms have to run in parallel with regional and national reforms, such as those that the European Union or my country are adopting. I shall refer to them now.
Economic situation in Spain
In the case of Spain, the crisis has coincided with the collapse of a long expansive period based on the disproportional development of residential construction and sustained by an increase of credit in a world context of excess of liquidity.
That produced a level of household and corporate debt that rose to 170% of the Gross Domestic Product; a current account deficit that amounted to as much as 10% of the GDP; and, in general, an excessive diversion of resources into a barely productive investment.
Now, following a significant drop in business activity and in employment in 2009, some of the accumulated imbalances are being reduced relatively quickly.
The dramatic scaling down of residential investment has reduced its importance in the GDP down to 4.9%, thereby putting it back to 1996 levels.
In turn, households and companies have begun a rapid process of debt reduction.
The household savings rate has reached historic levels, placing it at above 18% of disposable income while companies have reduced their need for financing from 11% of the GDP to 1% in just two and a half years.
The real needs of the nation as a whole for financing have declined to 4.7% of GDP, the lowest level for 6 years.
This is about a faster pace of adjustment than in other periods of contraction of our economy and also faster than that recorded by other countries with a high current account deficit.
In addition, the differential of inflation with the Eurozone has been corrected in the last year and a half, enabling the partial recovery of the lost price-competitiveness ratio.
But, there is no doubt, the prime and principle problem of the Spanish economy is the high rate of unemployment that stands at 20% and hence constitutes the Government's greatest concern.
It concerns a level of unemployment that is without a doubt, too high. And it does not reduce our desire by one iota to combat the not too distant memory that the Spanish economy has previously been familiar with when it experienced similar rates of unemployment, the most recent being in 1997, just before a period of exceptional growth and job creation that took us to the same unemployment rate as the European average.
In 2010, the Spanish economy is recording positive quarterly growth, especially stimulated by foreign trade, even though the year-on-year average will be slightly negative, at -0.3%, according to Government forecasts.
But it is growth, albeit weak; and this marks a point of necessary inflection to be able to tackle the path to recovery.
For 2011 we are hoping that this growth consolidates, with rates above 1%, and with a recovery in the creation of employment.
The reforms
Precisely with the objective of consolidating and intensifying this new stage of more balanced and sustainable growth, my Government is carrying out one of the greatest processes of transformation of the Spanish economy in our recent history
The reforms are vital to growth in a context of fiscal consolidation as well as in the situation in which we find ourselves, as a consequence of the effort made to contain the effects of the economic recession, at the same time as preserving social cohesion and part of the industrial fabric threatened by the crisis.
Therefore, fiscal consolidation, together with austerity and reforms are the two main axis on which the Spanish economy runs and are going to continue to run on in the immediate future to reach the threshold of its potential growth as soon as possible.
I. Fiscal consolidation
One of the consequences of the economic crisis has been the considerable decline in our fiscal position that has gone from a situation of surplus during the three years prior to the crisis to one of a deficit of 11.2% of the GDP in 2009.
This deficit is explained in part by the extraordinary discretional measures to stimulate business activity and employment, but also by the effort made to maintain comprehensive unemployment benefits and the loss of fiscal income.
This situation began to right itself in January 2010 with a Stability Programme to place the deficit below 3% by 2013, in accordance with the criteria of the EU Stability and Growth Pact.
A series of measures to reduce costs were adopted within the framework of this Programme including a reduction in public employment vacancies and a plan to streamline the State public sector.
In order to minimise the possible negative impact on growth, the cuts were focused on the costs side, although measures were also adopted in the 2010 budgets on the income side, such as an increase in tax on investment income and of Value Added Tax that came into effect on 1st July.
As is well known, there was a worsening of the Greek debt crisis in May that spread to the sovereign debt of a significant number of countries in the Eurozone, including Spain.
So, we are going through a very delicate period, not just for the Eurozone, but also for the recovery of the world economy as a whole.
Beyond the joint measures in the context of the European Union, such as the creation and the financial provision of the European Stabilisation Mechanism, or the extraordinary measures of the ECB, Spain was one of the first economies to implement an additional package of fiscal austerity.
They were tough measures that were linked to others approved previously and that affected the salaries of public employees, pensions, aid for development, investment in infrastructures and pharmaceutical costs, to the value of 15,000 million euros, and that will mean a reduction of our deficit to 6% by the end of 2011.
In addition, we have already approved the non-financial cost limit for the 2011 Budgets that is going to mean an effective reduction in the budget of more than 15% for practically the whole of the costs programme in which the Government has discretional power.
The major restriction on the budgets for 2011 will be compatible with maintaining, as far as possible, those budgetary items related with Education and Research, and Development and Innovation; sectors that are crucial for increasing the potential for growth of our economy.
And my Government will continue adopting the measures necessary to ensure strict compliance with the path to reduce the deficit, acting on a timely basis when faced with the risks of deviations, if they arise.
All of this will enable us to continue maintaining a level of public debt in the future that is way below that of our European partners.
I should like to remind you that our public debt over the GDP now stands at 54% and will, according to the European Commission, stand at 70% in 2011, a significant figure, but far less than the 82% that is forecast for Germany, the 89% for France or the 119% for Italy.
In direct relation with the commitment to fiscal consolidation that, while short term, is also medium and long term, one of the structural reforms we have implemented - that of the public pension system - should be put into context.
It is not a problem today as our pension system currently enjoys a surplus and does not suffer any solvency problems. Neither is it a matter linked to the crisis as it does not have an immediate relation with the economic situation, but rather with a demographic cycle. Therefore it concerns a reform directly linked to medium and long-term budgetary stability.
The majority of developed countries are facing a very important ageing population process in the coming years. Spain, even though it has a younger population than the European average, will also undergo this process.
Therefore, the Government has proposed a reform of the pension system that proposes, amongst other aspects, to progressively raise the legal retirement age from 65, as it currently stands, to 67, and an improvement in the level of contributions to the system.
We are seeking the maximum consensus of all political parties and social stakeholders and we are confident that the reform can be carried through to a draft bill before the end of the year.
II. The reforms
Spanish society has already demonstrated its ability in the past to successfully take on significant reforms.
From the middle of the 1970s, it was able to transform an authoritarian State into one of the most modern democracies in the world; a process that has later served as an inspiration to other democratic transitions.
In the 1980s, it tackled its first major economic modernisation, carrying out a difficult process of industrial re-conversion.
In the mid-1990s, another tough period of adjustment enabled us to meet the criteria required to join the Monetary Union.
Now, we have embarked on a new stage of modernisation, with reforms that are no less profound than previous ones and that will be decisive to speed up the recovery and the generation of employment as well as determine our potential for growth in the coming decades.
So, with an ambitious agenda of measures that we call the Sustainable Economy Strategy, we are tackling - to highlight the most important - the reform of the financial system, labour reform, the pension system and that of various sectors directly linked with the competitiveness of the economy.
1. The restructuring of the financial system
As you are aware, the crisis had, in its international dimension, a financial origin.
It was not like that in Spain, initially. Thanks to the strength of the regulatory framework and the rigorous supervision of our Central Bank, the banking system was not exposed to the problems of sub-prime mortgages.
The result of all that is that in Spain, as in Japan, we have not needed to bail out any bank.
Nevertheless, the interaction of the financial crisis with that of the real economy has caused some savings banks to be affected by the previous growth cycle that created problems of excess capacity in the network of branches and of exposure to the real estate sector.
In order to respond to this situation, we have carried out a reform of the savings banks system, on which around half of the credit granted in our country depends.
In the first place, the Government has driven forward a process of mergers supervised by the Bank of Spain that was completed in June with the reduction of the number of savings banks from 45 to 18.
The only public aid necessary for this process was in the form of loans at a market rate of interest for a total of 11,000 million euros and which are conditional on a robust process of staff and branch reductions.
Secondly, we have reformed the legal system of the savings banks with two objectives: to improve access to financing, enabling the entry of private capital, and to make the governing bodies more professional so as to improve their management.
In spite of the restructuring undertaking, there were still some doubts about the real situation of the European financial system, and in particular of the Spanish one, due to its exposure to the real estate sector.
Therefore, Spain, which then held the rotating Presidency of the EU, encouraged a stress test exercise to be held jointly for the EU financial system, the results of which were published in July.
This transparency exercise was more comprehensive in Spain: we opted to provide more information on banking assets, with a stricter hypothesis on the evolution of the housing market and greater coverage by extending it to entities that represent more than 95% of our financial system.
This was how tough we were and reflects our commitment, whilst the next most ambitious Member State limited itself to 75%.
The tests have demonstrated the solvency of our financial system showing, under some assumptions of extremely negative economic evolution, needs for capital of around 2,000 million euros and which affect 5 of the 27 entities under scrutiny, all of them savings banks and all of them small or medium sized.
Without a doubt, this is going to be an important factor for easing the uncertainty of international investors - it is already happening in fact - in regard to our financial system, to contribute to getting the wholesale finance markets back to normal and, therefore, to facilitate access to credit for companies and families.
2. The reform of the Labour Market
You should be aware that one of the traditional characteristics of our economy is that, in situations of crisis, far more jobs are destroyed than in other developed countries.
It is, however, a peculiarity of our labour market that is incompatible with a new model of a productive economy such as we aspire to.
Therefore, the Government has instigated a significant reform that affects fundamental aspects of the functioning of the labour model and that is presently in the final stage of scrutiny by Parliament.
The aim of the reform is to immediately increase our capacity to create employment by taking advantage of the economic recovery. And structurally, it is aimed at modernising our framework of labour relations, providing incentives for investment in human capital and stimulating the creation of value added companies, and with a demand for better qualified labour.
It encourages companies to be more flexible in adapting to the changing circumstances of increasingly competitive markets.
With this objective in mind, aspects relating to internal flexibility will improve, such as geographic mobility or the modification in labour conditions, enabling companies to dissociate themselves from industry agreements and to adopt reductions in the working day in the light of difficult situations.
On the other hand, from the point of view of external flexibility, the reform facilitates adjustments to staffing levels when companies find themselves objectively in a difficult economic situation, or when, for technical or organisational reasons, they need to adapt staffing levels to new market conditions.
And along with greater flexibility in the two aspects mentioned, the other major objective of the reform is to reduce the high incidence of temporary employment and excessive labour instability.
The high turnover level discourages investment in training and human capital and hampers the adoption of cutting-edge technologies, with the consequent negative effects on productivity.
In order to combat this, the Government has introduced measures to reduce the cost of permanent contracts for companies that will be complemented by an increase in the cost of temporary contracts from 2012.
3. Reform of the pension system
We are also undertaking a profound reform of the public pension system.
It is not a problem today as our pension system currently enjoys a surplus and does not suffer any solvency problems. Neither is it a matter linked to the crisis as it does not have an immediate relation with the economic situation, but rather with a demographic cycle. Therefore it concerns a reform directly linked to medium and long-term budgetary stability.
The majority of developed countries are facing a very important ageing population process in the coming years. Spain, even though it has a younger population than the European average, will also undergo this process.
Therefore, the Government has proposed a reform of the pension system that proposes, amongst other aspects, to progressively raise the legal retirement age from 65, as it currently stands, to 67, and an improvement in the level of contributions to the system.
We are seeking the maximum consensus of all political parties and social stakeholders and we are confident that the reform can be carried through to a draft bill before the end of the year.
4. Reforms to improve competitiveness
Fiscal consolidation, the restructuring of the financial system, labour reform and the reform of the pension system are necessary and vital reforms to support the path to recovery of the Spanish economy on solid bases.
But it is not enough. We also need to complete or introduce other changes whose common objective is to have an impact on competitiveness.
I should like to highlight just three of the measures that we are setting in motion:
• To continue progressing with the liberalisation of the services sector that, until now, was the main source of our inflation differential with the European Union and of many of our problems of competitiveness.
We are thus completing an ambitious transposition of the so-called EU Services Directive that will enable us to improve the operation of certain activities that employ 30% of workers in our country with higher training and that have a significant impact on the development of the economic and business initiatives and also on the lives of citizens.
• I am promoting innovation. We have improved their fiscal incentives. We have approved a State Strategy for Innovation, with the objective that the number of innovating companies should double in the next five years. And we have approved a new Science and Technology, and Innovation Act that is already going through Parliament and which is aimed at the excellence and internationalisation of our R&D+i together with increased technology transfer.
• The preparation of a Comprehensive Industrial Policy Plan up to 2020 that we shall present before the end of the year, with the objective of reaching the EU average as regards the importance of our industrial sector, and increasing our industrial exports to non-community countries.
A common element in the whole of this agenda for reforms is the backing of internationalisation; internationalisation in services, in industry and in innovation.
We know that the exit from the crisis will come from greater trade and economic integration and not from isolation and protectionism.
III. Bilateral relations
In striving towards this goal of internationalisation, Spain is determined to strengthen and intensify its links with Asia and most particularly with Japan.
Our collaboration is not recent: it began in the middle of the fourteenth century by the Society of Jesus, that some call the first multinational in the world, which as you are aware was founded by a Spaniard.
After centuries of ups and downs, rapprochements and separations, with the arrival of democracy in my country the last 30 years have seen major advances in our economic and trade relations.
But they still continue to be insufficient if we take into account the size and the importance of our respective economies.
There is therefore significant potential for growth.
Prior to the crisis, Spanish exports to Japan amounted to 1,500 million euros annually in 2008 and now there is a strong recovery with 24% growth in the first five months of the year. Our exports of services have increasing importance, with more than 200,000 Japanese people who choose our country as a tourist destination.
For its part, Spanish imports from Japan amounted to more than 5,000 million in 2008 and they are also recovering with 27% growth in the first five months of the year.
Spanish investments in Japan, although relatively modest, continue to make progress. Currently, there are 30 Spanish companies with a presence in Japan, the majority of them in the fashion, food and consumer goods sectors.
In turn, Japanese investment in Spain continues to gain prominence. There are around 160 Japanese companies located in Spain, of which 65 have their production centre in our country, with the majority belonging to the transport and industrial sectors such as the car industry, chemicals and electronics.
We in the Spanish and Japanese governments are seeking to strengthen our economic and trade relations and this is a fundamental objective of my visit to your country, beyond our shared positions in the various multilateral forums.
One of the areas where we are going to strengthen our relation is in the field of innovation. This is a field where Japan is a market leader and where Spain has made significant progress. The Cooperation Agreement that we are going to sign will contribute to a more fluid development of joint actions on matters of science, technology and innovation.
As I have explained to you, Spain is modernising its industrial fabric and this is going to mean multiple opportunities for investment in many sectors. Therefore, in the meeting with industry business owners that I shall have tomorrow, I propose to encourage them to take advantage of this.
The opportunities are not limited to investments in Spain or Japan, but rather there are major opportunities to jointly develop markets in third countries. The knowledge of the South East Asian markets on the part of Japan and, similarly, that of Spanish companies in the Latin American markets and North Africa are relevant assets to develop joint projects.
Ladies and gentlemen, I should like to finish by saying,
Spain is a leading economy with important technological and human capital development. These are qualities that it shares with the Japanese economy.
In order to reach our level of development we have faced major challenges that we have successfully overcome.
We are also going to overcome the challenges that the current situation raises for all of us, by emerging stronger from the crisis through a process of demanding and ambitious reforms.
And one of the key elements in our strategy to open a new stage of vigorous and sustainable growth in Spain is to continue to drive forward the internationalisation of our economy.
This is why we are here in Japan, which for us is a reference country, an example to follow in many areas and where there is a major potential avenue for strengthening our cooperation together.
Thank you very much.