w e d e n ; 199 7 - 98 f o r e c a s t b y n a ti o n a l i n s t i t u t e o f e c o n o m i c r e s e a r c h stock trimming in the current cyclical phase is not uncommon ; it occurred at much the same juncture in the 1970s and 1980s. it has to do with the tendency to produce in excess of demand when activity is rising so as to avoid being unable to deliver if demand grows rapidly. in time, firms find they have accumulated surplus stocks and initiate an adjustment. this has the reverse effect - production rises more slowly than final demand. under certain circumstances stock adjustments may trigger a more marked economic slowdown. this may happen, for instance, if effects of the adjustments either spread to private consumption or have a negative impact on the labour market and household confidence. the riksbank was therefore alert to the risk of private consumption being weaker last spring and summer, which would have pointed to a further curb on inflation. in practice, however, private consumption went on rising in the summer and its growth became somewhat stronger in the autumn. low inflation and interest rate reductions the rate of inflation decreased during 1996 and the rates that different economic agents expected in the future also moved down markedly ( diagram 2 ). this enabled the riksbank to lower the repo rate from 8. 91 to 4. 10 per cent. as a result, the initial position for the ongoing growth phase in sweden ’ s economy is more favourable than for many years. the drop in the rate of consumer price increases was appreciably accentuated by the riksbank ’ s repo rate cuts in that these contributed to the reduction of mortgage interest costs. under normal circumstances the tolerance interval around the price stability target should suffice to absorb transitory effects on the price level. last year, however, the fall in interest rates was very marked because many factors had a concerted effect that rapidly altered the picture of inflation. the magnitude of that interest rate fall is also largely responsible for the weak price trend to date in 1997. diagram 2 m o n e y m a r k e t ag e n ts ’ in fla tio n e x p e cta tio n s p e r ce n t o c t. ’ 94 o c t. ’ 95 m a y ’ 96 cpi n o v. ’ 96 ’ 96 f

stefan gerlach : banking and fiscal union introductory remarks by mr stefan gerlach, deputy governor of the central bank of ireland, at a panel session at the eui conference on “ the state of play in the euro area – fixing the emu for the long term ”, florence, 21 january 2013. * * * i am grateful to rebecca stuart for her help in preparing these remarks. while plenty of work has been undertaken since last summer on establishing a european banking union, progress has been uneven and it has stalled in some areas. of course, it is difficult to build consensus in a situation where bank resolutions may become necessary, and deposit insurance schemes could be called on, in the near future. this is a matter that ideally should have been discussed and settled when emu was formed, much in the same way as a car must be insured before it can be driven. unfortunately, that route was not taken. much of the interest in banking union arises because it is a necessary, but not sufficient, condition for the esm to recapitalise banks. indeed, the establishment of the single supervisory mechanism ( ssm ) with the ecb is frequently seen as having been adopted precisely because this is the fastest road, legally and institutionally, to banking union. it is of course essential and urgent to enable the esm to support banking systems in order to overcome some of the tensions in the euro area, and there is intense public debate about how best to structure the ssm. in my introductory remarks today, however, i would like to take a step back from that debate and instead reflect more broadly on why a banking union is important for any monetary union to function well and why it is natural to locate the ssm with, or at least “ close to ”, the central bank in such a union. banking supervision why might it be beneficial to have a ssm in a monetary union? to my mind, one important reason is that a greater remove between supervisors and the banks they regulate can help improve the capacity for challenge and ensure a broader, more detached, perspective on the issues. in particular, it would ensure the independence of the supervisory and regulatory decision - making process from national political pressure, and avoid regulatory capture. for example, a distant supervisor may take action to address risks arising from a bubble in good times that a national supervisor would come under pressure to overlook. it also seems unlikely that a banking supervisor from, say, italy or ireland, sitting in frankfurt,