high level that took hold in the 1990s, and wage growth has slowed. in the euro area, unemployment has dropped without an increase in wage growth. in norway, the high growth in labour costs may be a source of rising unemployment. interaction with fiscal policy it is important that the annual budgets are based on a long - term strategy that takes into account possible fluctuations in oil revenues from one year to the next. with large and, to some extent, varying budget revenues, the basis for determining central government expenditure and taxes from one year to the next may easily be impaired. if budget spending is allowed to vary in step with oil prices, the norwegian economy may experience abrupt shifts and instability. changes in oil prices may then quickly influence wage and price expectations, the exchange rate and long - term rates. in addition, short - term rates would have to be changed frequently and sharply. in recent years, central government real underlying spending growth has accelerated somewhat. in 2000 and 2001, spending growth has been higher than 2 per cent, which is higher than normal growth in the mainland economy. at the same time, direct and indirect taxes have increased. fiscal policy has thus had a virtually neutral effect on domestic demand for two years while wage growth has been substantially higher than in other countries. a possible interpretation of this development is that it is more demanding to use the government budget to dampen cyclical fluctuations during an upturn than during a downturn. the willingness and ability to pursue a counter - cyclical policy may in itself be cyclical. another interpretation is that a neutral fiscal stance this year, with a strong increase in government financial wealth, is a balanced approach to using the budget to stabilise the economy while phasing in an increase in financial income in the economy. conclusion the norwegian economy is fragile and vulnerable. as long as oil prices are high, the norwegian economy is fairly sheltered. many central banks are now reducing their key rates. as our economy is affected to a lesser extent, the differential between short rates in norway and abroad may widen. thank you for your attention.

in allocations to the petroleum fund. since all of the capital in the petroleum fund is invested abroad, such changes will in principle not influence the level of activity in the economy. this makes the norwegian economy more robust to fluctuations in oil prices and thus less dependent on oil, even in the short run. nevertheless, the mainland economy is not completely protected from fluctuations in the oil price. a fall in oil prices will influence petroleum investment and may thereby have a direct impact on employment in some industries. household and business income expectations may also be affected. a shift in international developments may also have a direct effect on the norwegian economy via financial markets. an international turnaround with a decline in equity prices could influence enterprises'possibilities for financing investment. household wealth may also decrease. norwegian households'direct ownership in enterprises is still smaller than in many other countries, which suggests that the effect on domestic demand via equity prices will be limited. perhaps the most important transmission channel is the foreign exchange market. the experience of recent years shows that international financial market developments can have a short - term impact on the krone exchange rate. heightened uncertainty and unrest in foreign exchange markets can lead to higher risk premia on small countries'currencies. developments in 1998 are one example, when the krone came under growing pressure as a result of the sharp fall in oil prices, turbulence in international capital market in the wake of the russian crisis and imbalances in the norwegian economy. monetary policy the long - term objective of monetary policy is to provide the norwegian economy with a nominal anchor - domestic price stability, and thereby the basis for a stable krone. nominal stability is the best contribution monetary policy can make to economic growth and prosperity. a nominal anchor is also a necessary precondition for stable financial markets and property markets. high inflation and wide swings in the exchange rate impair the function of prices as an information vehicle. this leads to booms followed by busts and an arbitrary redistribution of income and wealth. inflation therefore poisons the economy. by linking movements in the krone to the euro, we have chosen to follow the same standard for nominal stability in the economy as set by the euro area countries. since 1997, inflation has been higher in norway than in the euro area. the difference partly reflects a period of strong growth in norway, while the level of activity in europe has been low. but the relatively high inflation rate in norway cannot continue as this will undermine the basis for stability in the krone exchange rate