period of strong economic expansion after 1997. until 2000, this was counteracted by the depreciation of the krone. companies with income in foreign currency could cover the higher labour costs with the increased revenues which were a result of the weaker krone. when the krone began to appreciate, however, it did not take long before relative labour costs measured in a common currency rose sharply. despite this development, the strong wage growth continued. this contributed to a deterioration in the exposed sector ’ s competitiveness. despite a pronounced downturn among many of our trading partners last year, annual wage growth in norway increased to 5¾ per cent. wage drift remained surprisingly high through the autumn of 2002, especially in some manufacturing sectors, partly as a result of local settlements. due to the depreciation of the krone this year, it now appears that competitiveness is improving somewhat compared with last year. wage growth has also slowed to a more sustainable level. however, cost competitiveness is still weaker than the average for the past 30 years. the global downturn started in 2000 and through 2001, the interest rate in the us was sharply reduced to stimulate growth. for a long period, a relatively rapid recovery was expected. during the autumn of last year, it became clear, however, that growth would remain subdued for a longer period. changes in the economic outlook are clearly expressed in implied forward rates. in the us, these expectations have been adjusted downwards considerably since summer 2002. last summer, market participants expected the key rate in the us to be increased to about 4 per cent towards the end of 2003. the interest rate is now believed to have reached its lowest level and is expected to remain at 1 per cent until the end of 2003, with only a gradual rise after that. the lower projections for growth reflect the effect on the world economy of a number of negative shocks, such as the war in iraq and the sars virus. it took longer than first expected to correct imbalances created by an overoptimistic outlook in sectors such as the it industry. high oil prices may also have contributed to curbing the growth rate. gdp growth in important european countries has been low or negative for some time. in the netherlands, gdp has fallen for three consecutive quarters, and germany has recorded a contraction over the last two quarters. france ’ s gdp showed growth in the first quarter and a decline in the second quarter of this year. for the euro area as a whole, preliminary figures

this is an increase in government expenditure, owing both to the wage agreements and to the seismic activity near grindavik, which means that up to 1 % of the country's population must now look for new housing. the central bank is obliged to ensure that inflation converges with the target within an acceptable time frame. otherwise, the risk is that the wage agreements will not deliver the expected purchasing power. this is why it was not a given that the policy rate would be lowered as soon as the ink dried on the contracts. on the contrary : untimely interest rate cuts could impede the disinflation process and result in the termination of the wage agreements. and to quote from the monetary policy committee's most recent minutes, 4 / 9 bis - central bankers'speeches published yesterday, " unambiguous indications that inflation was clearly on the decline would have to emerge in order to make it possible to lower interest rates, and it was important to begin the monetary easing phase at a credible point in time. " we icelanders cannot enjoy substantially stronger gdp growth and larger pay rises than other countries do, and yet still have the same interest rates and inflation that they do – it is simply impossible. in most other european countries, the problem is more acute : persistent inflation and limited or even negative output growth. although many have criticised the central bank roundly for having hiked the policy rate up to 9. 25 % in response to this overheating and inflation spike, i can assure you that the repercussions would have been far worse if the bank had not responded. that would have been a journey back to the past, and one that few of us would have chosen to take. individuals come and go, but the strong framework that has been created for monetary policy and the application of that policy by the legislature and the central bank should produce results comparable to those achieved by other inflation - targeting countries. we will get results, but only if we are steadfast and disciplined and if all of us abide by the groundrules of the policy structure we have chosen. honoured guests : in 2013, the central bank embarked on a systematic programme of foreign currency purchases in order to keep the krona from overshooting in the wake of the tourism boom, but also to build up non - borrowed reserves. the purchase programme remained in place until 2017. over that period, the bank bought 6. 1 billion euros, the equivalent of 838 b. kr