Measured in local labour costs, cost competitiveness has been deteriorating since 1997. For a time, profits in the exposed sector were not affected by the increase in labour costs, as the krone depreciated. However, this depreciation could not last, as it would have ignited domestic inflationary pressures. Tight labour market conditions warrant a relatively tight monetary policy. Norwegian interest rates are not very high, however, when our wage growth is compared with that of other countries. On the contrary, the recent appreciation of the krone will have a cushioning effect on inflation and thus on interest rates. Since 1998, the increase in labour costs has been between 5 and 7 per cent. This year’s wage negotiations were no exception. It now seems evident that wage growth will be significantly higher than our previous estimate of 5 per cent this year. The carry-over to next year is also substantial, especially in retail trade and the public sector. It is evident from this year’s wage negotiations that our labour market is tight. Norges Bank kept interest rates unchanged at the Executive Board meeting on Wednesday, 22 May. The Bank changed its stance on future inflation risks. The main reason was the higher-than-projected wage increases. According to the Bank’s assessment of the risks associated with the inflation outlook, the appreciation of the krone cannot fully counteract stronger wage growth, faster growth in consumption, a higher oil price and a somewhat more favourable global economic outlook.

The wave of consolidation has, however, created mega-exchanges in the U.S. and Europe, and competition among them has proceeded at a furious pace. The Chicago Board of Trade (CBOT) faces a serious challenge on its home turf from Eurex, the all-electronic exchange owned by Deutsche Börse and the Swiss Stock Exchange. Eurex is now offering electronic trading in U.S. dollar denominated fixed income futures which have been the mainstay of the CBOT. The pan-European exchange, Euronext.Liffe, is offering electronic trading in Eurodollar futures contracts in direct competition with the Chicago Mercantile Exchange (CME). CME has responded quickly, announcing initiatives to accelerate the migration of its flagship Eurodollar contract to GLOBEX, its electronic trading platform. And just this month, it was reported that the New York Stock Exchange may enter the derivatives market too. Hardly a week passes without press reports of strategic moves by the exchanges. Securities exchanges have not been spared from the competition. London Stock Exchange (LSE) will launch its Dutch Trading Service, euroSETS, in May this year. This will allow the most liquid stocks listed on Euronext-Amsterdam to be traded through LSE. This bold move is being watched closely by the industry, and may challenge conventional wisdom on the contestability of stock exchange liquidity. The outcome of these contests could significantly alter the competitive landscape for exchanges in the next few years. Key drivers of consolidation and competition One key driver behind the consolidation and competition is technology. Exchanges and clearing houses are very much technology businesses today.