Inflation expectations that are low and stable clearly help to combat inflation. But I believe the low-inflation policy has wider implications. It is presumably one factor behind the recent improvement in trend productivity in Sweden. Firms today are exposed to considerably stronger pressure to change than they were in the 1980s. The conditions for labour market negotiations have also changed in ways that may well have positive effects on unit labour costs and thereby on inflation. Another consequence is that measures for strengthening competition have suddenly become politically relevant in ways that were not the case at least when I was working on such questions in the 1980s. Deregulation and the enhancement of competition can now have positive effects that are directly evident in the form of low inflation and thereby lower interest rates and higher economic growth. Moreover, with the division of responsibilities that now applies in stabilisation policy, fiscal policy is freer to focus on long-term issues and structural matters. The Riksbank’s way of working I should now like to comment briefly on how the Riksbank works and on the implementation of our so-called rule of action. These matters have featured in the general debate in the past year, presumably just because inflation and our inflation forecasts have continued to provide relatively weak arguments for raising the repo rate even though activity is strong. In simple terms, the Riksbank can be said to formulate monetary policy on the basis of inflation’s forecast rate, in the first place one to two years ahead.

But the potential benefits will derive importantly, too, from the greater transparency and liquidity of unified financial markets in the euro-denominated instruments rather than the fragmented markets denominated in the various national currencies that we have now. Providing transparent and liquid, competitive, innovative and well-regulated financial markets is one of the things which the City does particularly well. There will be a vigorous Euro-euro market in London, just as there are vigorous markets in Euro-DM, Euro-francs, Eurodollars and so on now. If not our dowry exactly, since we will not participate in the first wave, it will be our wedding present. The wholesale financial markets in the UK derive their strength from London’s position as a uniquely international, rather than simply a national or regional European, financial centre. This reflects the critical mass of markets and financial services in commercial and investment banking available in London including the strongest financial businesses from all around the world, and including leading Danish institutions. For instance, there are more banks operating in the City which are incorporated abroad than there are domestic banks, and more than half the total deposit base (over £ trillion) of the UK banking system is denominated in foreign currencies. And, the fact that so many foreign-owned institutions - including very many from our European partner countries - continue to build their presence in London, suggests that they share this perception. The City in this capacity is, I know, seen as something of a mixed blessing by some people on the Continent.