Is it possible to complement or modernise the framework to reduce known vulnerabilities while enabling investments that boost long-run potential growth and prosperity, and help alleviate some of the supply-side problems4 that contribute to high inflation? To give us a good foundation to start from, I would like to begin by briefly summarising what happened in the 1990s and how the economy has changed since then. 3 The Riksbank has for a long time been pointing out the risks associated with rising indebtedness; see, for exam-  ple, Ingves (2015). 4 For example, a lack of investments in the electricity grid cause a divergence of electricity prices across different regions of Sweden. Note that there is a big difference between long-term investments that improve the functioning of the economy and strengthen supply side, which dampens inflation, and discretionary fiscal policy that can temporarily support households and businesses but risks increasing inflation. 2 [16]  Drama thirty years ago We are living in dramatic times: A recent pandemic, war in Ukraine and inflation that has risen sharply around the world. One similarity between then and now is the major geopolitical drama. Then, there were revolutionary events such as the reunification of Germany in October 1990, the Kuwait war, the wars in former Yugoslavia which started in 1991, and the dissolution of the Soviet Union in December of the same year. The political events made their mark on economic developments. I have often thought of the 1990s crisis as a domestic financial crisis.

This will be further accentuated by the current trends whereby financial intermediaries outsource activities both on a domestic and cross-border level, while the introduction of the European Union Directive on the European Single Company Statute, the so called Societas Europea, will present new regulatory and financial stability challenges on a regional level. The implications of international developments for Malta These observations are particularly relevant for Malta. First, whereas the size and complexity of financial intermediaries, and that of corporate entities to which they are exposed, has grown disproportionately relative to the resources available to regulators and liquidity providers across the globe, this divergence is magnified further in a small jurisdiction such as ours. Second, because the characteristics of the Maltese economy make it vulnerable to developments abroad, the financial sector is especially exposed to changes in the perceptions of foreign investors about the sustainability of prevailing economic policies and the capacity of the financial sector to absorb external shocks. 4  BIS Review 50/2004  Given the ease with which funds can now move in and out of the country, moreover, and the scope for disparity between the size of the economy and that of foreign institutional investors, the need to maintain confidence in the domestic financial sector assumes particular importance. This risk is further accentuated by the fact that while most sectors of the economy operate in a competitive environment, in many sectors business remains concentrated among a small set of market players. The financial sector is no exception in this regard.