##clical effect. countries that are close to the maximum deficit on account of weak activity are obliged to follow a restrictive line, while those with good activity and a surplus do not need to tighten their policies in this way. this problem has arisen because the pact was actually constructed so that it only functions properly when all the member states have established the necessary margins. that is still not the case. for the euro area as a whole it would presumably be best in the present situation if the countries with high activity were to tighten their policies even more. that might create room for a somewhat lower interest rate in this area in the coming years and thereby ease the situation for the consolidation of government finances in the countries with the greatest problems. at present, however, there are no mechanisms for bringing such a policy about. thirdly, even if the fiscal position in all the countries in question were now in good order, the tradeoff between fiscal and monetary policy raises issues for which there are still no ready - made solutions. let us take the hypothetical case of a falling stock market in the united states that pulls the dollar down. the recent trend would then be reversed into an appreciation of the euro. that would be liable to check the recovery of manufacturing in the euro area. what should the eu finance ministers do? one possibility would be to go for an overall tightening of fiscal policy in order to pave the way for lower interest rates and a weaker euro. as things stand, however, it is not clear how this could be done in practice. once again we face the question of the restriction ’ s distribution among the participating countries. these three interrelated issues are all important. the solutions are hardly self - evident, partly because they involve the difficult balance between national concerns and matters that should be decided at union level. conclusion the euro ’ s introduction in eleven countries in our part of the world is the biggest economic policy change in europe for decades. new conditions have been created not only for households and firms in the euro area and adjacent countries but also for economic policy. sweden is by no means unaffected by this change, even though we are outside the euro area at the start. economic development in the euro area is crucial for sweden ’ s economy. as a member of the european union, moreover, we are involved in many of the contexts where policy is formed. we have also undertaken to conduct our policy in accordance with the rules that have been established for the union. against this background it is important that we

widespread trading relationships. as a member of the european union, moreover, we have to observe many of the established rules and guidelines ; we also participate in the european discussion on the formation of economic policy. against this background, my talk today concerns economic policy in europe and the new conditions that accompany the euro. the single monetary policy basic features the european central bank ( ecb ) has been responsible since the beginning of this year for the single monetary policy in the euro area, with the primary objective of maintaining price stability. the general formulation of this objective has been defined more precisely by the ecb as being a year - onyear increase in the harmonised index of consumer prices ( hicp ) for the euro area of below 2 per cent. in that this definition refers to the rate of increase, it means that deflation is excluded in practice and the annual rate of change in the hicp should accordingly be between 0 and 2 per cent. the single monetary policy is based on assessments of a wide range of economic and financial indicators of inflationary pressure. a prominent position is likely to be accorded to the money supply. as a reference value for annual monetary growth, the ecb has initially set a rate of 4½ per cent. the combined strategy — focusing on inflation but with a reference value for monetary growth — is motivated by the great uncertainty as to how the aggregate euro economy will function initially. the ecb therefore wants to avoid having to stand on only one leg in its assessments. the ecb also states that the objective is to be fulfilled over the medium term and thereby underscores that the single monetary policy is not to parry every short - term shock. deviations from the target may be acceptable during a relatively short period. an analysis of the economic situation is published by the ecb in a monthly bulletin, which aims to ‘ explain to the public the monetary policy decisions taken by the governing council of the ecb ’. the bulletin will also consider fiscal policies, economic structures and labour market tendencies in the euro area. but the ecb does not publish either forward - looking assessments and forecasts of inflation or the minutes of decision - making meetings and the positions of individual members. press conferences with the ecb executive will be held, however, in connection with meetings of the governing council. in addition, policy will be explained continuously by executive board members in speeches and appearances before the european parliament. inflation assessment the ecb and the riksbank both have price stability as the monetary policy