not been fully learned, means there are still obstacles to cross - border banking. in europe, we have gone one step further in ensuring that banks in the euro area are supervised according to one approach – an essential part of the response to the crisis was to create a single supervisor for the euro area. the single rulebook forms the basis for this supervision. but this rulebook is not as single as supervisors would like. there are still some important areas in urgent need of harmonisation, not only to ensure a level playing field, but also to promote cross - border banking. 1 / 2 bis central bankers'speeches i will mention just a few : fit and proper rules are not harmonised at all. many crisis - related supervisory competences are not harmonised. there are still some options and national discretions open to member states, which means banks can be treated differently for reasons other than the underlying risks. we see that cross - border banking has recovered elsewhere but not in europe. european banks still lag behind in this respect. in part, this is also due to ring fencing, which limits banks ’ ability to freely move liquidity and capital within groups in europe. i understand that taking the first step in eliminating ring - fencing is daunting. host country supervisors fear being left to foot the bill of costly crises. for small economies, or large economies with a large number of foreign banks, this is a challenge. but it is a challenge we need to find a common solution to. and we need to find this solution before the next crisis hits. 2 / 2 bis central bankers'speeches

. flexible inflation targeting builds a bridge between the longterm objective of monetary policy, which is to keep inflation on target and provide an anchor for inflation expectations, and the more short - term objective of stability in the real economy. this contributes to predictability for those who take decisions about saving and investment today, although the result of those decisions depends on how the economy develops in the future. monetary policy must strike a balance between the various objectives. strong growth in the norwegian economy, a tighter labour market, a pronounced rise in equity prices and high credit growth must be weighed against unexpectedly low inflation. norges bank ’ s projections in the inflation report are based on an interest rate path that in the executive board ’ s assessment strikes a reasonable balance between the objectives of monetary policy. previously, we based our analysis on various technical assumptions concerning future interest rates. one such assumption was market interest rate expectations. as from late last year, we now base our projections on an interest rate path that we consider reasonable. this gives norges bank more active ownership of the projections that are presented and of the uncertainty we believe surrounds these projections. in the baseline scenario presented in inflation report 1 / 06, interest rates in norway and abroad are assumed to rise somewhat faster in the longer term than current forward rates may imply. exchange rate movements are difficult to project. the interest rate path at home and abroad may be consistent with an approximately unchanged krone exchange rate. the high growth rate in the economy implies a gradual pick - up in price and cost inflation. with interest rate developments as outlined above, core inflation is projected to increase from about 1¼ per cent today to about 2 per cent at the end of 2007. there are prospects of a further increase in inflation, with inflation projected to be close to the target of 2. 5 per cent three years ahead. the output gap is expected to increase over the next two years, but will peak at a fairly moderate level as gradual increases in the interest rate dampen demand growth. on the basis of the analysis in the inflation reports, norges bank ’ s executive board assesses the consequences for future interest rate development and adopts a monetary policy strategy for the period to the next report. interest - rate setting since last summer has been oriented towards a gradual increase in the interest rate – in small, not too frequent steps – towards a more normal level. based on norges bank ’ s assessment of the driving forces in the economy, this strategy appears robust. output growth is strong