, try to shift the payments onto the other countries. problems of another type have come to the fore with the past year ’ s weakening of the euro. when the mood is negative, every potential problem gets an airing regardless of its weight in practice. difficulties in small countries, for example in connection with inflation being considerably higher than in the core countries, can then be presented as a threat to the whole, with consequences for the euro ’ s exchange rate. rules and processes for promoting cohesion all the problems and risks i have mentioned were essentially well - recognised and thoroughly discussed before the emu was formed. various rules were therefore constructed to prevent what is called destructive diversity. the maastricht treaty, for instance, includes rules to prevent excessive government debt being dumped onto others. this is explicitly prohibited by the ban on government financing in the central bank. the treaty also rules out privileged access to bank loans as well as bail - outs by other countries or the eu as a whole. the most important concrete instrument for promoting cohesion is, of course, the eu ’ s convergence criteria for emu participation : low inflation, low interest rates, a stable exchange rate and balanced government finances. much has been said and written about these criteria. i have already suggested that perhaps it is not just these criteria as such that are the key to a monetary union that functions properly, although the part they have played in disciplining policy in a number of member states should not be underestimated. but i do believe they have had the important effect of contributing to a greater consensus than before on issues of stabilisation policy. the maastricht treaty ’ s institutional requirements concerning formal central bank independence and the legal infrastructure of the financial sector have also contributed to the consensus that has been achieved and which i believe is central for the proper functioning of emu. a remarkable degree of economic convergence throughout the eu was achieved in the second half of the 1990s. if one excludes greece, the gap between the highest and lowest rates of inflation among eu countries narrowed from 10 percentage points in 1990 to 1 % point in 1997. in 1995 the gap in the public finances extended from a deficit of almost 8 % of gdp in sweden to a deficit of 2. 3 % of gdp in denmark. by 1997 the gap had narrowed to a 0. 1 % surplus in denmark and a 3. 0 % deficit in spain. the emu process also led to more similar levels of interest rates. in many countries the instrumental

and on other credit markets. this can also be seen in a measure called the ted spread, which i have also shown earlier to the committee on finance ( figure 2 ). the ted spread is the difference between an interest rate in the interbank market and a government bond rate, both with three - month maturities. the measure provides an indication of the confidence between the banks. the ted spreads have gradually fallen and for some time have been at around the same levels as in summer 2007, before the financial crisis became acute. although measures such as the central banks ’ loans to the banks have probably played a role here, the low ted spreads indicate increased confidence and a more stable situation in the interbank market. figure 2 more stable situation in the financial markets the difference between interbank rates and government bond rates ( ted spread ), basis points sources : reuters ecowin and the riksbank another healthy sign is that individual problems have not spread exaggerated unease in the financial markets around the world. i refer here to dubai world, for instance, which defaulted on its payments earlier in the winter and has since suffered new problems, and to greece, which is struggling with very poor public finances. a further example is the economic problems in the baltic countries. while these events are reminders in themselves that we still have some way to go before we can declare this crisis completely over, if the same things had happened in autumn 2008 the waves of turbulence would probably have been much higher and affected markets far from the eye of the storm. we are now on firmer ground – or on safer ice, if you prefer. a further positive sign is that activity in the financial markets has increased after being very low in some cases, particularly during the most intensive phase of the crisis. for example, it appears easier for companies to fund themselves directly in the markets. when will the central banks and government phase out their support measures? the extensive measures taken by governments and central banks around the world to counteract the effects of the crisis have contributed strong economic stimulation. but in many countries some of the measures, however necessary they may have been, have led to much poorer government finances. in countries such as the united kingdom, ireland, spain, greece and the united states public finances are under great strain, for various reasons. this means, for instance, that there is a risk that the long - term interest rates in these countries will rise quickly, which to some extent has already happened. this in turn can hamper the economic