In 2005 the current account deficit attained 7½% of GDP, its worst position of the last 25 years, and in 2006 it might reach 8½%. Traditionally, Spain’s trade deficit has been partially offset by surpluses in other external balances, particularly service trade, as a result of large net tourism inflows, but since 2005, the current account deficit has been as large as the trade deficit. While cyclical factors, strong domestic and weak foreign demand, and the transitory effect of the increase in oil prices certainly have some bearing on the deterioration of the current account balance, structural factors, linked to persistent competitiveness losses, also play a significant role. In the past, attempts to rebalance external accounts relied on the exchange rate instrument. However, as devaluation is no longer an available option since accession to the monetary union, the focus should be put on rolling out policies designed to enhance productivity growth – in other words, implementing the Lisbon agenda. This remains crucial to recovering lost competitiveness and rebalancing the external accounts.