The basic trade-off, as noted earlier, could be described as a choice between improved efficiency of the economy and hence higher living standards, as well as the possibility for each sovereign country to pursue an autonomous stabilisation policy in the case of asymmetric shocks. The questions just referred to could very well be addressed using this dichotomy. Irrespective of whether the currency area is optimal, there is most likely room for improvement concerning both factor and product markets. The ability to absorb macroeconomic shocks increases with the flexibility of the labour market, meaning that improved efficiency also has a positive effect in terms of less need for stabilization policy. In the case of the EMU, ambitious welfare systems have been perceived as causing labour markets to become too rigid. Job safety for employees has in some cases resulted in pronounced insider-outsider problems, a reluctance to undertake structural reforms and a general difficulty to come to terms with increased competition on the back of globalisation. However, change is definitely possible. Using my own country as an example, one main question in the discussions before the referendum was the functioning of the wage formation process and the flexibility of the labour market. Today, not least due to reforms, these types of concerns have abided, at least in part. As for the product and service markets, the new currency area offers distinct and tangible advantages. Primarily, since the new market is larger, there will be increased competition which benefits consumers through lower prices.

In times of crisis, as we have seen during the current crisis, other more unconventional methods can be used, such as fixed-rate lending at longer maturities and asset purchases (quantity easing) to affect longer interest rates and expectations of future short rates, and foreign-exchange intervention to prevent currency appreciation or even to induce currency depreciation. The authority responsible for monetary policy is typically the central bank. Financial-stability policy has the objective of maintaining and promoting financial stability. Financial stability can be defined as a situation where the financial system can fulfil its main functions of submitting payments, channelling saving into investment, and providing risk sharing without disturbances that have significant costs. The available instruments are, under normal circumstances, supervision, regulation, and financial-stability reports with analyses and leading indicators that may provide early warnings of stability threats. In times of crisis, authorities may use such instruments as lending of last resort, variable-rate lending at longer maturities (credit policy, credit easing), special resolution regimes for financial firms in trouble, government lending guarantees, government capital injections, and so forth. The responsible authority or authorities vary across countries. In some countries it is the central bank, in other countries there is a separate financial supervisory authority, and sometimes the authority is shared between different institutions. Financial-stability policy and monetary policy are conceptually distinct, with distinct objectives and distinct suitable instruments. My point here is that this has to be taken into account when considering the lessons of the financial crisis for monetary policy.