Speech and subsequent question and answer session with President of the Government at closing ceremony of 30th meeting of Círculo de Economía

Sitges

Dear friends at the Círculo de Economía [Economic Circle],

I would like to once again thank the Círculo de Economía for this invite to its forum and thank Antón Costas for his words of welcome. My speech will be mainly characterised by its economic content, but I will endeavour, at the end, to provide a response to some of the queries raised by Antón Costas in his speech. One issue that I would like to raise at the beginning is that not even Antón Costas is perfect, as was substantiated in the last part of his speech. So be it! At any event, thank you all very much for coming here today.

Indeed, this is the 11th time I have attended this forum and I must, first of all, congratulate you on having reached so many years. We have just had the chance to see how this forum started, which was initially held every few years, as I was told, whenever the acting chairman so decided. Moreover, it was held in another place yet now it has practically become institutionalised - it is now held in the last week of May and takes place on an annual basis. Hence, I congratulate you.

Ours is a country that needs sound and consolidated institutions that are a true reflection of what is called 'civil society', and the Círculo de Economía is a good example of how this need can be covered in an exemplary fashion. The Círculo de Economía is an indisputable benchmark for the analysis of the Spanish economy and indeed of other issues, and it provides an invaluable service that we should all be grateful for, which is why I once again feel - I repeat, on this the 11th occasion - very honoured to be here, and whenever I can, and whenever you invite me, I shall attend.

I intended to be brief, although following the speech from your chairman I will have to extend my speech a little more, and I was going to be brief because I intuitively thought that many questions would be raised in the Q&A session and I would like to respond to your demands and concerns. But some of these have already been raised and I will endeavour to provide a response to them.

Allow me to deal with an initial issue. Our last meeting was a year ago tomorrow, on 1 June 2013, and 12 months on we can ask ourselves a question out loud: "Is the Spanish economy worse off, the same or better off than back then?

To place this in context, I would remind you that we were then in recession, our economy was contracting, jobs were being shed and unemployment was on the rise. I believe that things have changed very considerably and I will tell you more. I will read you a text:

"The Spanish economy has done an about turn. Recovery began in the second half of 2013 and has gained ground in the first quarter of this year, with the economy enjoying the largest period of growth since 2008. Thanks to the strength of exports and the noteworthy improvement in the conditions of the financial markets, confidence has recovered which is fostering an increase in private consumption and in business investment. More importantly, progress is being seen in the job market.

We expect this recovery to continue in the medium term. This recovery reflects the collective efforts of Spanish society. In particular, the decisive economic policy measures adopted are starting to bear fruit. The difficult decisions regarding expenditure, taxes and pensions have strengthened the budgetary and pension systems, thus helping protect the future of the Welfare State in Spain. By forcing the weaker banks to redress their balance sheets, the financial sector programme - which has been successfully completed - is supporting the recovery through improving credit conditions.

These budgetary and financial sector measures, together with the crucial efforts made at an EU-wide level, have helped reduce the government's financing costs to historically low levels, thus boosting the recovery. The labour reform and salary moderation have helped transform job losses into job creation. Unemployment fell in the first quarter of 2014 year-on-year and employment grew in April year-on-year by around 200,000 new National Insurance contributors.

These collective efforts have significantly improved the outlook regarding job creation and an improvement in the standard of living. Without this effort, the recession could have continued with job losses increasing even further".

As you can all imagine, ladies and gentlemen, these are not my own words. They are a literal quotation from the final declaration of the International Monetary Fund's mission to Madrid on 27 May, just a short time ago. And I wanted to start my speech with these words because it is likely that some of you have not heard them before.

The suggestions made by the IMF in four areas of action - 'Help companies to grow, hire and invest', 'Reduce regulatory barriers to drive job creation and growth', Continue with fiscal consolidation to foster growth and job creation' and 'More support from Europe' are all pointers to be assessed and evaluated, but they are suggestions, not mandatory instructions as would have been the case in the event of a bailout. The Spanish people, through our sacrifice and hard work have bailed ourselves out and we can value these suggestions whilst freely deciding whether to follow them or not. You will remember that last year the IMF suggested salary reductions of 10% but the Government of Spain felt that this measure could not be taken on, yet, despite that, here we are, in a much better situation than back then and with a report from the IMF which, at the very worst, can be described as very positive.

Having said that, I will add something else: this report shouldn't make us self-complacent, among other things, because after what I have just read you, the report goes on to say, "However, the Spanish people continue to suffer from the legacy of the economic crisis, the most important data being that 5.9 million people remain unemployed, more than half of whom have been so for more than a year. Consequently, the average income of households remains at levels below that of prior to the crisis". That is what Antón Costas has just told us, in his own words, in his opening speech.

Hence, we can do no more than agree with the diagnosis - the situation is considerably better, the foundations laid are solid, but there is still a great deal to do.

For me and for the government, the most important thing is the unemployment figures. When I appeared in the Lower House on 20 December 2011 to request my investiture as President of the Government, I promised the representatives of national sovereignty that the legislature would have one key target: to return to the path of job creation and reduce the unemployment rate.

Having said that, I don't intend to overwhelm you now with a long list of positive figures being shown by the Spanish economy at this time compared with the same date last year. But I will point to the radical change in trend: the economy, which was contracting back then, is now expanding - from a fall of 1.9% in the first quarter of 2013 to an increase of 0.5% in the first quarter of this year; employment, which was dropping back then, is now growing, and this new reality allows us, but also obliges us, to persevere with our reform programme.

Ladies and gentlemen,

Spain can now face the future with another outlook, recalling, firstly, that our country is the fifth best economic success story in the world in the last half century - the fifth. We have a tendency in Spain to mercilessly punish ourselves, but our country is the fifth best economic success story in the world in the last half century, only behind Singapore, Hong Kong, to a lesser extent Japan and there or thereabouts with Ireland vying for fourth place, and all this despite the serious crisis of the last seven years. 50 years ago, the Spanish economy had a GDP per capita of 17% of the GDP per US inhabitant. This percentage has now risen to 76%. I can assure you that not many countries in the world can boast these results.

And if we did this back then, we can do it again now. What's more, we are going to do it again and we are going to do it again remembering that the times of greatest economic growth coincide with the times when our economy opens up the most. That's right, Spain grows and indeed grows most when it is capable of increasing its production of competitive goods and services in order to exchange them in foreign markets, and when it is capable of substituting imports with its own production, because this is more attractive to the consumer.

We can do this remembering that Spain grows when it has a clear and guaranteed macro-economic stability. Growth in Spain has never, ever, been associated with periods of high inflation, high foreign or public deficits.

We can do this remembering that devaluations of competitive currencies no longer exist. We must maintain our equilibriums on a permanent basis, with rigour and hard work.

And we can do this remembering that, in order to distribute, we must first sow and reap; without false shortcuts, without bubbles and without waiting for foreigners to come and resolve our problems. For us, Europe must be a window of opportunity, and not a type of all-healing miracle solution.

So, if we remember all of this and if we keep up a collective effort, we will manage to consolidate this change in trend that has started; a change in trend about which I would like to highlight a particular feature that is primordial for me, as I said before, which is employment and unemployment.

The job market has stabilised. Recorded unemployment, in seasonally-adjusted terms, will have enjoyed 10 consecutive months of falls in May. Average numbers of National Insurance contributors will now also see the ninth consecutive month of increases at the end of today. This all confirms that the improvement in the evolution of the job market is not merely a temporary phenomenon but rather a structural one.

Next Tuesday we will be made aware of the figures from the Public Employment Services on recorded unemployment and National Insurance contributors from the Ministry of Employment. The outlook, if I can jump the gun, is positive and we will see some figures we haven't seen for a long time, which isn't unexpected, given that both the National Statistics Institute and the Bank of Spain have certified that, for the second consecutive quarter, the Spanish economy is creating net employment. Hence, more jobs.

The next challenge is more stable employment. The main challenge now is to foster more stable employment of greater quality. To that end, the government approved a reduction in corporate National Insurance contributions upon subscribing new permanent employment contracts. This has helped boost this form of contract and 25% of all permanent contracts are now being implemented thanks to this 'flat rate', with an overall total of some 69,000 contracts, or some 750 contracts per day.

Hence, the Spanish job market has stabilised, unemployment growth has stopped and jobs are starting to be created.

However, according to the record of the Public Employment Services, 4,684,301 people are still looking for a job but are unable to find one. Moreover, a larger proportion of the people - 60% according to the latest figures from the Public Employment Services - are increasing the long-term unemployed; in other words, those who have been out of work and looking for a job for more than one year, or even more than two years. Spending a long time out of work has very serious consequences, not only in economic, social and personal terms, which are obvious, but also in the capacity to rejoin the job market. It is thus crucial to reduce the time for the transition from unemployment to employment.

A key element in achieving this is to commit to training. Between 2007 and 2013, more than half the workers who had not completed primary education lost their job, while the number of people in work with higher education increased by 2%. Unemployment rates are systematically higher for those with less training. The unemployment rate for those who have only completed primary education is 40.1% while it stands at 15.8% for those who have completed higher education; in other words, less than half.

Presently, hence, it is essential to speed up the return to the job market of the high number of people out of work so that they can be part of the economic reactivation. We must be capable, and this is the challenge - I will speak later about the content of the speech by Antón Costas - of converting the budding economic recovery into job creation at a faster pace - I repeat, a faster pace - and as intensely as possible, because the crisis is clearly not over with the current levels of unemployment that exist.

To that end, before the summer, the Council of Ministers will review a new raft of employment measures; a second phase of reforms to enhance job creation and economic growth with the following components that I can announce for you here:

- The Spanish Strategy on Activation 2014-2016, in coordination with the Regional Governments, that will include the modernisation of the Public Employment Services, the full implementation of the framework agreement for collaboration with private placement companies in labour intermediation and the implementation of the Single Employment and Self-Employment Portal.

- Secondly, the reform of the training system for employment, which will be agreed with the social stakeholders. This is a very important issue that we would like to reach a consensus on but, as I said, a reform needs to be carried out of the training system for employment.

- The Plan to implement the Youth Guarantee.

I repeat, this will happen before the summer.

Having said this, I commented earlier that the Spanish economy grows when we open up to foreign markets, and to do that, it is essential to maintain the current trend of improved competitiveness. To this end, next Friday, that is, Friday of next week - I am also announcing this here and now - the government will present a Plan of Measures to Drive Growth, Competitiveness and Efficiency, the fundamental aim of which is to continue making progress on improving the present and future competitiveness of the Spanish economy.

Gaining in competitiveness is becoming a structural characteristic of our productive system, but to do so whilst avoiding this being a flash in a pan, we need to continue removing barriers and inefficiencies that still exist in some markets and which leave us at a disadvantage when compared with our competitors.

In this regard, the Plan of Measures to Drive Growth, Competitiveness and Efficiency is an ongoing policy. We will continue working along the same lines as we have been. Whenever someone says that they are continuing along the same lines or that it is an ongoing project, this seems to be something negative but I profoundly disagree; if a certain way of doing things is successful, why change it? But I'm not going to get into a debate on this matter.

We have undertaken significant reforms that have improved the operation of the markets, such as the labour reform, the reform of the financial system and the energy reform, but there is still a lot to do. We must drive research and development, remove inflexibilities in regulations to allow the markets more freedom so that the latter act with greater liberty, we must contribute to reducing the cost of basic factors and intermediary products, and of course, we must continue working so that financing reaches companies and households with greater ease.

This Plan, which, I repeat, will be approved next Friday, develops part of the National Reform Programme for 2014, that we presented in Brussels at the end of April, like the rest of the Member States of the European Union. The Plan aims to mobilise a total investment of 6.3 billion euros, of which 2.67 billion come from private initiatives and the other 3.63 billion from the public purse.

By way of example, I will tell you that the Plan provides for aid, for a sum of close on 750 million euros for reindustrialisation and industrial competitiveness, a line of credit from the Official Credit Institute - the so-called 'Technological Innovation Fund' - for the sum of 325 million euros and capital instruments and guarantees to drive business R&D from the Centre for the Development of Industrial Technology (Spanish acronym: CDTI), which will mobilise more than 600 million euros annually.

Within this scheme of things, Spain will contribute the sum of 800 million euros to the European Union SME Initiative, which seeks to increase the volume of credit for SMEs through the incorporation of joint resources from the European funds and the European Investment Bank.

Also worthy of mention among the new instruments is the creation of a National Fund for Energy Efficiency, with a provision of up to 350 million euros annually, co-financed by European funding. This Fund is created within the framework of the transposition of the Directive on Energy Efficiency which establishes a series of obligations on energy saving. To achieve this, a system of obligations for energy suppliers will be implemented, in addition to this National Fund. They may opt either to achieve these savings through their own actions to reduce energy consumption or through contributing resources to the aforesaid National Fund.

These resources will enable a series of plans to be set in motion to finance investment projects that improve energy efficiency within the building sector - an area in which we will place particular emphasis - industry, transport and the agricultural sector.

In addition to these new financial instruments, public-private partnerships will be boosted in various areas. This will thus improve accessibility to ports and, taking into account European regulations on water, the necessary and urgent investment in treatment plants will be boosted.

The Plan also includes new stimuli for the acquisition of clean and efficient means of transport. The PIMA Air 4 Plan for commercial vehicles will be implemented - an aid programme to purchase electric vehicles - as well as a plan to renew the fleet of heavy goods vehicles. We expect this plan to be as successful as the previous PIVE plan, which, I repeat, will be renewed once again.

With the same aim, but in another scheme of things, on the issue of financing, there will be a drive to make creditor arrangements more flexible with the reform of the Bankruptcy Act, and a reform of the system of secured transactions that extends goods eligible for registration, simplifies their regulation and allows greater and more efficient use of this type of guarantee.

Improvements will also be introduced to improve the business climate for entrepreneurs, such as the Plan to Streamline Environmental and Building Regulations, which will help remove duplication and unnecessary requirements, and the Plan to combat the breach of administrative deadlines in procedures to grant building and environmental licences.

Finally, the Plan includes measures aimed at improving the competitive operation of the markets; specifically for transportation. It seeks to improve the efficiency of road transportation, boost railway transportation in a deregulated environment, improve the competitiveness of ports and foster the development of infrastructures to recharge electric vehicles.

So, ladies and gentlemen, this raft of measures, in itself, will help improve key aspects of the competitiveness of certain productive sectors, but it will also serve to provide incentives to the actions of businesses. Hence, it will operate as the catalyst to boost Spanish competitiveness.

Allow me now, ladies and gentlemen, to spend a few minutes on the fiscal reform. As you are all aware, before the end of the year, the Law to reform our tax system must be published in the Official State Gazette to thus come into force as from 1 January 2015. It has been possible to undertake this reform, or rather it will be undertaken because, thanks to the efforts over these last two and a half years, our tax bases are starting to grow, which has made it possible to take on this process without serious risks for the mandatory - and I repeat mandatory - fiscal consolidation and to maintain the level of revenue flowing into the public coffers, which is a key issue, as will not have escaped any of those present.

The general idea, although this has not yet been settled definitively, is to lower taxes. We are striving to increase disposable income in the hands of families, boost consumption, improve the competitiveness of the economy as a whole, increase savings, and, most particularly, contribute towards job creation. The new tax system will be governed by principle of fairness and efficiency.

Corporate Income Tax will logically form part of this reform. In this battle to improve the competitiveness of Spanish companies, we are sure that a reduction in the tax rate and the equal treatment of international income will be factors that will foster the vital competitiveness of our business fabric.

Without going into detail, what I will say to you is that we are looking to bring the nominal rate in line with the effective rate, simplify the tax, update the regulation - which has suffered many amendments over the last few years without undergoing a general review - and adapt it to EU law.

The tax rate will be reduced from the current 30% to 25%. This will be done, as in the second half of the 90s, in two stages, the first of which will affect taxes next year.

I said to you earlier that this isn't the time to go into detail, but I would like to announce to you that a business capitalisation reserve will be created which will allow the part of profits allocated to reserves and not disposable to not be subject to taxation, without this obliging investment to be made in the company itself. The measure seeks to incentivise both own financing and the capitalisation of companies, which will undoubtedly boost the process of reducing debt - now referred to as de-leveraging - which is progressively taking place in the business fabric of our country.

Since we are talking about reducing levels of debt, remember that over the last two and a half years the private sector has reduced its debt by a figure of some 300 billion euros. This phenomenon has taken place while sustainably increasing the value of companies listed on the stock exchange. Between May 2012 and April 2014, the general index of the Madrid Stock Exchange has increased by 90%, with an increase in capitalisation of 303 billion euros, representing a 60% recovery in the losses caused by the crisis.

A crisis which, I repeat, we cannot consider as overcome, although we have left the worst behind. The Spanish economy is now enjoying growth, the Social Security system is enjoying an increase in the number of contributors, consumption is starting to grow and credit is starting to flow again. But what still lies ahead requires us to maintain as much effort and dedication as we have been putting in to date. The profound change of course that has taken place must now guide us, and this is the challenge, towards an economy capable of reducing, slowly but surely, unemployment because it increasingly generates more people in work.

Ladies and gentlemen,

If you are kind enough to invite me here again next year to this forum, I hope we can toast the success of the target set at this year's meeting, which is to ensure our future and seek to strengthen industry, growth and employment. If we achieve this, you will all have played your part in a great collective effort.

And before finishing my speech, I will try to give a response, although I don't know whether I will achieve this or not, to some of the concerns that the Chairman of the Círculo de Economía raised in his speech.

He has said many things, all of them interesting all of which give food for thought, such that I could spend several hours here talking about them, but, of course, the question isn't to respond to each and every issue individually but rather to focus on what I feel is fundamental.

There is one issue that I fully agree on. Regarding the general ill-feeling of our citizens there is one thing that is true - when this issue we know as economic recovery starts, in other words, when we say "we are starting to come out of the crisis", the social crisis begins because things don't filter down to the man in the street right from the word go. Many people say, "we are in a time of crisis, I am suffering, but we are in a time of crisis". Conversely, what is difficult to explain is that, when the recovery starts "for me or for many other Spaniards", as is happening, the recovery hasn't arrived yet.

This is exactly right and this process needs time. I am fully aware of that. It is very difficult to resolve all the issues overnight and for the decisions adopted by the government and the progress of the economy to reach our people, but, of course, in 2012, which was the first year we were in government, was a year in which we did what? Firstly, avoid a bailout, tackle a sovereign debt crisis, tackle a financial crisis, reduce the deficit and make structural reforms, with very bad results because economic growth in 2012 stood at -1.6% and unemployment continued to grow.

What happened in 2013? We continued to reduce the deficit, we continued making structural reforms and the results were also negative, because growth of -1.2% is clearly not good, but a few good things happened, such as growth in the third quarter of 0.1% and in the fourth of 0.2%, and there were fewer unemployed at 31 December 2013 than at 31 December 2012. That is clearly not enough. Of course, people don't see this growth, but things are starting to turn around.

Then we get to 2014. What has happened in 2014? In the first quarter we have grown by 0.4% while the Eurozone has only grown by 0.2%. And there is one figure I wanted to convey to all of you because I believe it is interesting: in February 2014, for the first time in 68 months, there was an increase in National Insurance contributors on the same month of the previous year - the first time in 68 months. The same thing happened in March and in April, and rest assured that in May the same thing will happen, and in June, and in July. We believe we will grow by 1.2% this year, which will be more than Italy, France and indeed the EU average. And next year, the European Commission estimates that Spain will grow more than the EU average, more than the Eurozone average, more than France, than Italy and than Germany. We will see if that is true or not, but better they are saying that rather than saying precisely the opposite.

In other words, there's a path… It's true that people can't see this. I am fully aware of that. I cannot say to any Spanish citizen who has lost his or her job that things are great because, as you can easily appreciate, nothing is great for him or her, but, from a global perspective, things are starting to turn around, things are looking up and what we have to do now is persevere.

But the reason why I agree with what you said is this. It is true, in a situation where everything is going badly and there's a crisis and negative growth, and all news is bad news, and there's talk of a bailout, people say, "things are like this", but, of course, when things start to go better, people want things to go better for them as well. That is something we will have to explain and, above all, continue working so that people can truly see an improvement.

The issue of the challenges facing us was also raised, the reform of the Constitution, the political reforms… I will tell you two things: I have never been against a constitutional reform; never. In fact, the Constitution in Spain has been reformed twice and the last time it was reformed was following a call to me from the then President of the Government, Mr Rodríguez Zapatero, in the summer of 2011, because it was necessary for Spain to incorporate the Fiscal Compact into our constitutional text, which I signed in Europe at the start of 2012. We reached agreement in half an hour and it was implemented.

I feel, and above all… I would ask you to put yourself in my position, because I am the President of the Government and I must thus see things very clearly. To undertake a constitutional reform, there is something that seems very important to me, which is to know the content of the constitutional reform, something which is perfectly understandable.

To what end should we reform the Constitution? A symmetric federal system? An asymmetric federal system? What's the difference between a symmetric federal system and the asymmetry of the situation Spain is in at the moment? Shall we revise the exclusive competencies? Shall we not revise them? Shall we divide up our national sovereignty? We need to think about everything. I understand that there are many people who want to reform the Constitution, but I have the problem that I must see very clearly what needs to be reformed and what is the objective.

I am not refusing to do this. The same is true of the Upper House. We can reform the Upper House, but what type of Upper House of Parliament do we want? In other words, what is the objective? Will we all agree on this? It is very important to firstly know what the objective is and then to find a way to achieve this.

At this time, I sincerely believe that the most important challenges facing Spain, aside from the issue of Catalonia which I will speak about later, are the following: firstly, the European process. This is indeed a far-reaching constitutional reform; a true reform of the Constitution. Losing one's currency and monetary policy or exchange policy is the most far-reaching reform of the Constitution ever carried out in Spain. The entire free movement of people, goods, capital, services…….

Banking Union? We have approved Banking Union. I have been in Brussels a great deal, I have to be there. There we only talk about integration and union. It is a little sad to then come back to my country and hear talk of exactly the opposite. Banking Union may be an issue that many people are not interested in, but for the supervisor of the largest Spanish banks, and indeed the smaller ones, to change from the Bank of Spain to the ECB is a change in the Constitution of the first order.

Talk is now of Fiscal Union. I don't know if we will end up having Fiscal Union or not, but I, of course, am in favour of it. But, whether we have Eurobonds or there is a pooling of debt, that is indeed a change of the first order, in the same way - there is talk of bailouts and these major debates - as if we all have to put in money to bail out a country, all of us. These are indeed far-reaching constitutional reforms. And let's not talk about whether we talk about Political Union.

This is the debate of the future: talking about what Europe we want and where Europe is heading.

The energy debate. It now seems that in Europe it is impossible to reach agreement in relation to the decisions that can be taken following the issue of Ukraine and Russia, because it turns out that there are a series of countries that are 100% dependent on gas from Russia. If there were simply an interconnection here, in Catalonia to be precise, half of the gas that goes through Ukraine, Slovakia, Hungary and other countries would go through Spain via Algeria. That would indeed be a far-reaching reform.

The issue of illegal immigration and border control. That is also a far-reaching reform. How are we going to resolve this problem? It seems to me that the fairest thing is for the European Union - all 28 countries - to reach an agreement with the countries of origin to help their development, to help them construct sound institutions and improve their education systems… That is the way to resolve the problem in the medium and long term. But is one country, Italy by itself, or Spain by itself, going to resolve a problem of this nature?

That is the great debate for me. Ladies and gentlemen, I am sorry for saying this but I believe that this is the major debate for Spain.

Spain is facing another debate of the first order - the Welfare State. Here everybody says, "you are cutting the budget, you are…". Well, Europe has something that no-one else has. Others may have many things, but Europe has a public pension system, it has free and universal healthcare, it has an education system, social aid and long-term care aid. Maintaining that is difficult.

Are you aware that in the budget of the government I head up, pensions account for 37% and unemployment for 10%? Are you aware of what expenditure goes on justice, home affairs, defence and foreign affairs, on these four ministerial departments? This only accounts for 4% of spending. 10% goes on servicing debt and 13% on transfers to the regional governments and local authorities. I have had to reduce ministerial spending by 28% since I came to power.

The debate is how to maintain this system. We have undertaken a pension reform regarding the sustainability of pensions, which I believe is a step in the right direction. And that is the challenge. That is indeed a subject for debate.

People say, "what does spending go on? There is a great debate, "cuts, social spending…? All spending is social spending. Pensions take up the lion's share, then healthcare. Everyone knows that. Third on the list is education, followed by unemployment benefits. For me, this is a subject for debate. Then, another issue that is very important, the competitiveness of the economy, which is very closely tied to the issue of social well-being. You have the issues of training, education and R&D+i.

I believe, I would like and I think that this country should focus on these issues, but there are obviously others.

As regards the issue of Catalonia, my basic position is well-known and I don't need to repeat it. I am Spanish and I want Catalonia to be as it has been forever. We are the oldest nation in Europe, the country that was the first to achieve national unity and, for me, Catalonia feels a part of this, as does Andalusia or, of course, my own land - Galicia. Hence, my position is absolutely clear on the matter.

So, I believe that the 1978 Constitution, which is now much-reviled by some, served as a basis for those who had nothing in common to reach agreement; people who came back from exile and those who had held ministerial positions under Franco, people who had a notion of what the structure of the State should be and people who had another notion that was quite the opposite. An understanding was reached there which gave rise to Spain becoming the most de-centralised country in the world. Just look at what I am saying, the most de-centralised country in the world. The government I head up does not spend even 20%, if you take out pensions, of total Spanish public spending. I am talking about in the world. And when I say "in the world", I mean in the world.

Back then everyone had to cede ground in their ideas and then, based on agreements, we gradually reached a consensus. Sometimes some come out of it happier or the interests are different. When models of financing come under discussion, some say, "what is important is the number of elderly people in my region, because these people spend more and visit the doctor more if they are old rather than young".

Everyone has their own arguments and reasons, and the only way to resolve these issues and the different interests which exist, as in any other walk of life, is through dialogue. No other civilised procedure exists other than through dialogue.

When I am asked "and you, what…?" of course I am prepared to talk, but to be perfectly frank and without any intention to annoy anyone, because that's not what I want, nor is that relevant nor does it make sense, I found out through the press that a referendum had been called, the date of the referendum and the questions to be raised. And before I found out through the press, the person who announced that his referendum was being called had not called me to say so. But of course, everyone wants dialogue from me.

The only thing I have to say is that I am absolutely prepared to talk, as I have always been throughout my life, but within the law. In other words, the President of the Government can be asked anything, but not to break the law. You cannot ask that of me. Not of me, not of any President of the Government, or of anyone else. Within the law and with total transparency.

The only thing I have on my desk today is an announcement that a referendum is going to be held, a petition in Parliament, which with the favourable vote of eighty something percent of the MPs said that it was not possible, and a ruling handed down from the Constitutional Court. Aside from that, I am prepared to listen very carefully, but in all sincerity, it is very hard to work to overcome a serious economic crisis - such as the one we have suffered in Spain and which we still haven't overcome - with all this going on around us.

Believe me when I say it is very hard when, moreover, we are at a key point in the European debate - I repeat, a key point - and when we have to continue making structural reforms, because the Spanish economy needs them. They will be medium- and long-term reforms, but someone also has to undertake these medium- and long-term reforms because someone needs to be thinking about that.

Hence, that is my position. Of course what I am not going to do is pull rabbits out of a hat or the suchlike. That is not the job of a President of the Government, who it is supposed is someone who should remain calm in a situation such as the present one.

I am going to deal with the issue of doing nothing. I was asked about "rejecting train crashes". Nobody wants to see a train crash, do they? The problem of train crashes, which Antón Costas mentioned, is that whenever there is a train crash it only happens for one reason: because someone is on the wrong line. If not, it is not possible to have a train crash. That is an important issue.

Second issue, without pointing any fingers: I was asked about doing nothing when I didn't ask for a bailout, which was what everyone was asking me, "you are not doing anything, you are not taking any decisions". Yes, I was taking a decision. There were only two possibilities; either you ask for it or you don't. Hence, if you don't ask for it you are taking a decision. I can reject the ideas of those who are in favour of doing nothing and I can reject those who break the law on purpose, but I don't want to reject anyone. I want to speak but, I repeat, within the law and transparently. This issue requires transparency. Let's talk now, turn on the lights and your tape recorders… I am ready, as I have always been.

I apologise for going on too long.

Q&A SESSION WITH THE PRESIDENT OF THE GOVERNMENT

Antón Costas.- Quite the opposite, President of the Government. We thank you for your words, both at the beginning and at the end.

I am also receiving lots of questions. Some of them, at least the first ones I have had the chance to read, have already been answered to some degree. You have mentioned them at least in the last part of your speech. They referred to what you have just said, to my reference to the risk of the social crisis tending to appear at a time when things start to improve.

There are various questions along these lines. For example, "Mr Rajoy, you are constantly saying that we are doing much better, but the difficulties remain very acute out in the street and this doesn't help - it says here - to avoid the 'tunnel effect'". The question is, "Are you worried about the social conflicts starting to emerge? How do you feel these can be avoided?

Along the same lines, another question says, "Do you believe that the Nordic countries are benchmarks in terms of active employment policies? In order to re-train the unemployed, what policies is this government working on? In this respect you have already announced some things in your speech. Another question is how do you believe that the "Holy Alliance" you have mentioned can be promoted. In part I think you have also answered that, haven't you?

Continuing along the same lines, during these workshops, we have spoken a great deal about education as a key factor for recovery. Someone says: " It would be appropriate to activate policies so that our universities can have a similar level to those of our business schools" And the question is "Can you give us some suggestions, some ideas, along these lines?

To these first questions, President of the Government, you have already answered in part.

President of the Government.- There is a debate, which I understand, about "this hasn't filtered down to the people". I have mentioned this, but let me try to fill out a little the response I gave earlier.

In 2012 and 2013, the government's line was that things were going very badly, and there were some who criticised us for sending out such a negative message. I tried to send out a realistic message. It was true that things were going very badly. I remember the month of July 2012, when I had to take a decision as to whether to raise VAT and whether to remove the Christmas bonus payment from public servants. They were decisions… As regards the civil service, there were some quite complicated decisions but we took them because we were on the verge of a bailout and because the whole world was pressurising us.

So, I said what I thought on the matter, that things were going very badly. But I am not saying now that things are going very well - I have said here that the crisis is not over while we still have these levels of unemployment - but neither can we paint everything black. Neither irresponsible optimism nor painting everything black. In other words, things are improving.

Nobody is now talking about risk premium, and now the 10-year bond has an interest rate below 3%; the Treasury issues are being financed at prices below that of 2005 and we are even seeing, in certain cases, the best prices ever. That is an important data. As regards foreign investment, I saw what happened in 2012, when everyone left, but they are now coming back. And exports are going well. There are things that are improving but there is still a lot to be done.

So, I try to paint a balanced picture. But the finer details are very hard to convey in a world that moves so fast. In short, we are doing better, but there is still a lot to do and the major challenge is job creation.

Training policies. This is an issue on which I tried to give some detail in my initial speech. It's pure common sense that the lower the level of training the greater the difficulties in finding a job. In this regard, training policies are important.

We are presently talking with the social stakeholders and we want to reach an understanding. It seems logical to me to try to reach an agreement, but there must be a reform of our active employment policies; in other words, this must work and it must be useful. And everything in this world can be improved upon. I am not going to give an opinion on whether the current model works well or not; having said that, of course, it can be improved upon and I think that we all agree on that.

Antón Costas.- There are also various questions on this matter, about how to tackle unemployment. Before talking about it you were asked for various ideas. I have jotted down here some of them because we had spoken about them on Thursday. As regards the creation of a National Energy Efficiency Fund, it says that building would be one of the sectors affected. President of the Government, we have spoken here, and we, at the Círculo de Economía are concerned and interested, because we believe that 20 million properties in stock, about 20 or 21 million properties in Spain, many of them with problems of energy efficiency, of a lack of efficiency… We believe that a plan aimed at reforming these properties could be along the lines of this Fund, is that right?

In some way, if you will allow me to say this, building a country whose windows close correctly could be a good programme to create jobs for a million or so people who have fallen on the wayside and who with difficulties, with a dynamic and innovative economy, will find their path and yet, I have jotted this down with great interest because I believe that there is a possibility there.

President of the Government.- I agree with what you have said 100%. Moreover, I had already been informed that this issue had been raised here, I already knew about it.

This is one of the issues that we were debating… I already said to you that the Plan will be approved next Friday, but at the last Council of Ministers we looked at this issue again and it is a key issue. It is very important for windows to close properly.

Moreover, we are being energy efficient, and furthermore, as you very well said, this could give work to a lot of people in difficulties and who worked before in a sector - the construction sector - which will still take time to recover although, just look, in the construction sector in the last four years - from a report issued by the Bank of Spain - there was negative growth of more than 10% per annum; this year it will continue in negative growth, but around 4%, while the Bank of Span forecasts that by 2015 there will be positive growth in the construction sector.

But, at any event, regarding what you said I am unconditionally in agreement. We had already debated it, we had had certain budgetary problems, but this is also very important for the very environment of our cities. If we can recover our facades, and our houses have another appearance and energy efficiency, that requires work, it is truly a great operation and that is why we will set it in motion.

Antón Costas.- Thank you, President of the Government. I am pleased to hear that.

There are also various questions in regard to taxation and the announcement of the fiscal reform proposal. There are certain very specific aspects. "Mr President of the Government, can we rule out a VAT hike in the short and medium term? And there is a sector reference afterwards.

I will read them, some textually. There are some which, in principle, I don't agree with but, to the extent that they are signed and are questions from the floor, I will also convey them. One of them says, "Will a tax reform be possible in which the PSOE abstains to give it credibility and consensus as a basis on which society will accept it?"

And there are two others along the same basic lines, in other words, VAT and the tax reform.

President of the Government.- The tax reform, in principle, will be approved this month, in the month of June. I have pointed out some ideas here, because there are things that we need to continue discussing right down to the last minute, above all in relation to Corporate Income Tax, because it seems to me that at this forum it is more reasonable to speak about Corporate Income Tax than Property Tax, for example, although Property Tax affects everyone, but there are not many forums to speak about Corporate Income Tax.

We will not raise VAT. There is no plan to raise VAT by the government. What I would like to say to you is one thing, because sometimes, it is also good that we are all informed. One of the toughest battles I had was in relation to VAT for the hotel and catering industry - the tourism sector - which stands at 10%. Some countries have been forced to raise it to 23%. In other words, governing also has its complications. Probably, if Spain had joined a bailout programme, we would have a different VAT rate in some sectors. But, in principle… In principle, VAT will not be affected by the tax reform to be approved in the month of June. It will not be touched.

The second issue, whether the PSOE will abstain from the tax reform. I would be delighted. And if they vote in favour, even more so. Our relationship with the PSOE on these issues, let's say issues of State, the most important issues, I believe has been reasonable recently. Of course, if we cannot reach agreement, that's bad, and if we reach agreement, then we are advocates of bipartisanship. In short, these are issues that make little sense. This would be good.

At any event, I believe that in Europe… That is another of the major debates. Will there be tax harmonisation in Europe? That is something under discussion. There is already some harmonisation in VAT issues and there is a very important debate going on surrounding Corporate Income Tax while the issue of Personal Income Tax will be an issue to raise later on, but it is another of the main discussions being debated there.

Regarding the tax issue, what I can tell you is that the reform will go through in June, that the general line is a reduction in taxation; there will be a reduction in Personal Income Tax and there will be a reduction in Corporate Income Tax. That is what I can announce to you here.

Antón Costas.- We have run a little over time. President of the Government, I will sum up quickly. One of the first questions that reached me is in regard to saying, to recognising, that while the diagnosis of improvement is sufficient, why then is the government not capable of transmitting this to Spanish society. To some extent you have answered this, but I wanted to mention the issue so that you could take it into account.

And a variety on the theme, well, quite a few, 12 to be precise, which I will try to bring together into one question. They express in different ways, sometimes signed but the majority anonymous, the fact of whether it will be taken into account that last Sunday 61% of the Catalan people that voted did so for parties in favour of the referendum.

Along the same lines, a further two questions. One says, "Entrenching oneself in a position, the law first, this is an obstacle that cannot be overcome, how can this be avoided?" They then ask, "Why don't you assume the leadership as President of the Government?

Another more "incisive" question being asked to some extent. "Against the powerful media machine of the Regional Government of Catalonia, why is the Government of Spain incapable of responding forthrightly, with seriousness, in the media - it states - pointing out the enormous social, economic and political costs of independence, and the benefits of "better together'?"

There are various questions along these lines that ask you to play the leading role that many believe the President of the Government should take in this situation.

There are others, much more specific, which I can summarise to some extent here. One says, "9 November, you reject this". If the President of the Regional Government of Catalonia calls it, how will you intervene? What will you do to avoid this?

Finally, and I apologise for not being able to read all of them, can be summarised as, "President of the Government, many things were illegal in 1976 but with the passage of time, we have made them legal and turned them into mechanisms for coexistence. The question here is why not hold a legal referendum?

You can now see, President of the Government, the direction all these questions take.

President of the Government.- The first had an explanatory statement, if I understand correctly, whereby the diagnosis of an improvement in the Spanish economy is recognised and the question is, "why haven't you brought this message to the people?"

This is an issue which I spoke about earlier from a substantive point of view. It is true that crises are firstly overcome with macro-economic figures, and with that comes growth; and in the end, job creation; and then revenue starts to increase and hence more social policies can be financed and other typical policies that the public administration services undertake.

This stage has been a tough stage from the point of view of public spending because we have had to reduce public spending a great deal and revenue has not increased.

There is one figure that I would like to give you in relation to this question. Spain lost 70 billion euros in revenue in the years 2008 and 2009. If we hadn't lost these 70 billion euros in revenue, Spain would not have a public deficit, but, of course, we did lose them while spending continued to increase at that time. And hence, the task to resolve this is vast.

This year, finally, it seems that revenue is starting to increase, in other words, the figures for the first few months - January, February, March and April - are almost 5% higher than last year and there is, above all, one very positive figure, which is the increase in tax revenue from small- and medium-sized enterprises. That, hence, is also a very positive figure.

And the question is why don't they vote for us? I have a sheet of paper here, "Fitch - the ratings agency - saw the victory by the PP in the European elections as surprising". It says, "It is surprising that the Partido Popular was the party with the most votes in the elections on 25 May following the adjustments made in the last few years, and it put it down, in part, to the improvement in the economy over the last few quarters". I don't believe that was the reason. I believe that many people have understood that there were things that needed to be done although this whole issue of an analysis is debatable as everyone makes their own analysis and, in the end, it doesn't matter.

Let's move on to all the other questions which revolve around Catalonia. They are varied and I believe I understand them all. I will try to answer them.

I am not entrenched. Your can be totally and utterly assured that I am not entrenched; and I explained my position to you earlier. In other words, I became aware of this referendum… I don't know how you became aware of it; I became aware through the newspaper. But even after that no-one called me, nor before. Hence it is not me who is entrenched. The only thing here, on this matter, is that there was a debate in our national Parliament which I attended and I gave my reasons and set out my arguments. I was under no obligation to attend, none, because it was not me who made the proposal. Moreover, it is not normal for the President of the Government to intervene in these matters. I attended and I defended my position and I gave my reasons and my arguments. I have nothing else to say. Aside from that, I continue not to be entrenched.

Others tell me to assume the leadership. The problem is with the meaning of the words because, for some, assuming the leadership is one thing, while for others, it is something absolutely different. There are some who say, "Make us an imaginative proposal, let's see what you can do about that", while others don't ask me for an imaginative proposal, but rather say, "You know what you have to do when someone calls an illegal referendum". What does assuming the leadership mean? Everyone exercises their leadership according to what they feel they must do.

But, I repeat, what I have to say to the Spanish people at this time is that the President of the Government guarantees that the law will be upheld, because if I don't do that, I would not be the President of the Government, but something else.

Aside from that, I have to say to the Spanish people that I am prepared to listen to whatever anyone has to say to me, but please do so within the limits of the law. And, aside from that, we are constructive. I have tried to be constructive. We have gone through some hard times with the Regional Government of Catalonia and with other public administrations. We have carried out a Supplier Payment Plan, which was a big risk because we had to increase the public debt and go to the markets for financing when we were paying bonds at more than 7%. I believe we have made an effort to deal with everyone, and I am sure we have made some mistakes, the same as any other government.

As regards the issue of the leadership, rest assured that I assume this. The issue is that some would like me to do one thing, and others another thing.

The media issue. I am not going to get into the media issue, nor do I know… Well, I do know what the media in Catalonia do, as in other places.

But I am not sure whether I am an influential person with the press or not. The media do what they feel is opportune and appropriate, and that is their responsibility. A society is not only built on what the government does; it is built on what other people do - business owners, university professors, the media… In other words, that is the old trick of placing all the responsibility on the shoulders of the government, whoever that may be, or such and such mayor. A society is built on hard work, effort, dedication, common sense and a balance between many people.

The media have their own responsibility, which I am not going to judge, the same as business owners or regulatory authorities or, of course, the Government of Spain, or university professors, or university deans. In other words, we can all influence whether things go better or worse.

I am asked to play a more leading role. I suppose that means making more appearances, it is… well, that's ok with me. It should probably be like that, the thing is that I have spent thousands of hours during the last two years with the most difficult issue for Spain at that time, which was the economy. I have spent many hours speaking with many people about some of the issues that we have commented on here today, and that wasn't easy. And I have to choose the priorities.

What will I do on the 9th if a referendum is called? That hasn't even crossed my mind because, among other things, it goes against their word, that someone can call a referendum which the Constitutional Court and the Spanish Parliament have said was illegal. In other words, I cannot imagine the situation; we are an important country in the world. We have the 13th highest GDP in the world, we have a long history behind us, a certain weight, traditions and culture and this… Maybe in other places, but it is unthinkable here.

Antón Costas.- Thank you very much, President of the Government. Two seconds more on each of three different issues.

President of the Government, allow me to pick up on an expression, which has not only been used here today, regarding your pre-disposition to enter into dialogue provided this is within the limits of the law and transparent. In this regard, you almost answered me by saying: to what end should we reform the Constitution? President of the Government, we will work to this end. I believe that the mere fact of saying "let's see to what end we should do this" is worthwhile, I believe that this is an important signal to give out.

And, President of the Government, I would like, as you leave here today, you to mark on your agenda that on 30 May 2015, a Saturday, at 12 midday, to come back and see us. You have been here on 11 occasions and, hence, you ought to be the person who has charged the most for attending these conferences. But that's not the case. What I can say to you is that that our thanks and our payment is due to your generosity and we applaud that.

President of the Government.- I feel overwhelmingly that merely to invite me back here next year is payment enough.