the riksbank ’ s target both one and two years ahead, mainly due to lower wage cost increases and improved productivity growth. during 2004 und1x inflation is expected to amount to an average of 0. 6 per cent, which is 0. 5 percentage points lower than the december forecast. the corresponding figure for 2005 is 1. 2 per cent, which entails a revision of 0. 4 percentage points for the year. at the end of the two - year period that comprises the main focus of the forecasts, inflation according to und1x is expected to be 1. 6 per cent, on the assumption of an unchanged repo rate. so what are the risks that might upset the picture i have just presented? we make it clear in the inflation report that we consider the risks of a poorer development in swedish and international economic activity to have declined as the recovery has progressed. experience also shows that it is easy to underestimate the force of an upturn once it has found a foothold. developments in the labour market in both sweden and the united states are one factor pointing in the other direction. in addition, developments in the euro area remain sluggish and in the united states there are problems with imbalances in foreign trade in particular. our opinion is nevertheless that, compared with the picture we present in the main scenario, there is an upside risk for inflation from economic activity in sweden and abroad, with links to price trends. there are arguments that we could have either overestimated or underestimated cost pressure. compared with the december assessment, we have revised up our basic view of productivity, although there is considerable uncertainty in this area, given the surprising developments over the past six months. on the other hand, the uncertainty regarding wages has diminished somewhat, as central wage agreements have now been concluded for a large part of the labour market. all in all, our assessment is that the risks in this field are balanced. the conclusion of the discussion on risks in the inflation report, and which i have only briefly touched on here, is that we saw reason to make an upward adjustment in the main scenario inflation forecast of around a tenth of a percentage point. this does not alter the conclusion that inflation in terms of both cpi and und1x will be below the target level during the coming two years. during the first year we believe that inflation will be significantly below two per cent. we have also assessed that inflation will be marginally below the target at the end of

speeches until the financial crisis, the combination of financial integration and national sovereignty seemed to work well in the eu ( figure 1 ). financial crises were not considered to be likely and financial stability came far down on the political agenda. in connection with the financial crisis, however, policy makers have been forced to realise that increased financial stability has to come at the cost of either financial integration or national sovereignty. in principle, there are two options. firstly, there is the federal approach, where you allow for a full delegation of powers to the eu level, including regulation, supervision and crisis management ( figure 2 ). secondly, you can abandon the idea of the internal market and return to a system with full national control of domestic financial systems ( figure 3 ). figure 2 figure 3 the de laroisiere group opted for a third way – the middle way – to reform the eu financial system. in terms of the financial trilemma, this means keeping financial integration and, at the same time, trying to find a reasonable compromise between financial stability and national sovereignty ( figure 4 ). somewhat stronger cooperation, but still resting on national sovereignty. figure 4 financial stability financial integration national sovereignty given the present european crisis, you may well ask whether this is a possible compromise or whether it will be just another damp squib. only time will tell. but within this concept, there is room to move towards stronger european cooperation. the eu ’ s new supervisory structure the de laroisiere proposal rested on two major institutional pillars. the first related to the previous “ level 3 ” committees, which were to be strengthened, transformed into authorities, bis central bankers ’ speeches and given as much power as possible without having to change the european treaty. out of this came the three european supervisory authorities ( esas ), namely the european banking authority ( eba ) in london, the european insurance and occupational pensions authority ( eiopa ) in frankfurt and the european securities and markets authority ( esma ) in paris. we discussed whether these three authorities could be merged into one, but that was considered premature. suggesting such a merger might have delayed the whole political process ( figure 5 ). trying to move the three to the same city was considered equally impossible. figure 5 the eu ’ s new supervisory structure european banking authority ( eba ) european systemic risk board ( esrb ) european securities and markets authority ( esma ) european insurance and occupational pensions authority ( eiopa ) the second pillar was the european systemic risk