. the world in very quick time moved from a comfort zone of fixed exchange rates and a low and stable price for oil to a new era of floating exchange rates, and an unprecedented high price and volatility of one of the most critical commodities in international trade. further, fundamental change came in 1989 with the demise of communism and the unraveling of the soviet union, the other super power. the results of these separate events, when put together, represented a fundamental change in the architecture of the international political and economic system on the approach of the new millennium. a number of seminal books have been written on this new phenomena and they are worthy of note at this point. they are – • the end of history and the last man by francis fukuyama ; • the clash of civilisations and the remaking of world order by samuel huntington ; • the borderless world by kenichi ohmae. all of these books in direct and indirect ways speak to the issue of global governance in a world which had apparently lost its original moorings and needed new paradigms on which to base its relationships. these relationships involved those between states as well as between firms. the books raised various questions. for example, will differences in civilizations like western civilisation versus islam be a governing principle in the conduct of international political and economic affairs? the current situation revolving around the issue of terrorism may suggest this, although the jury is still very much out on the matter. the ascendancy of liberal democracy has been certainly confirmed as in theory there are certainly more states which have reasonably fair electoral practices. however, the deeper underpinnings of liberal democracy such as an independent judiciary, freedom of the press, and well - regulated markets are yet to appear in many countries. the borderless world is real in so far as the movement of finance, capital and the increasing flow of goods is concerned, but we are yet to see the demise of the nation state as predicted by ohmae as a corollary to the borderless world. what is clear is that there has been a consolidation of states into one world in terms of inclusiveness through such international institutions as the united nations, the bretton woods institutions, the imf and world bank, and the world trade organisation representing respectively politics, finance and trade. the demise of communism and the command system of resource allocation has left the market system in sole command as the arbiter of economic decision making. all countries, including the former soviet union are

stockholm rose by 14 per cent on an annual rate, and prices in goteborg rose by 20 per cent. prices were steadier in malmo, with a rise of 5 per cent on an annual rate during the first quarter. at the same time as prices have risen substantially in recent years, rents and demand for office space have not increased appreciably. while employment in the services sector has increased in recent years, this does not seem to have had an impact on the demand for office space. as both demand for premises and rent levels have remained relatively unchanged, it is therefore likely that the price upturns in recent years are due more to a decline in investors ’ required rate of return. the required rate of return depends partly on the yields on long - term government bonds, as these function as a risk - free alternative to investment in property. the required rate of return also depends on how much investors demand in compensation for investing in higher risk assets, such as property, that is, what risk premium they demand. interest on government bonds rose in total during the first quarter of the year. all other things being equal, t his should raise the required rate of return. however, over the past year the required rate of return has fallen. this could either be due to investors expecting rents to rise in future, or that they have demanded a lower risk premium. a lower risk premium is in itself not surprising. the risk premiums on a number of different assets have fallen around the world in recent years. but as for a number of other markets, there may be reason to wonder whether the low risk premium on office premises is reasonable. however, one must remember that property companies have had very strong profit growth in recent years. unlike the crisis years, property companies currently have much better margins to manage some dampening of prices. i therefore do not believe at present that developments in the commercial property market comprise any threat to financial stability. but as it was the exaggerated commercial property prices that contributed to the banks ’ major losses in the 1990s, i consider that we should monitor future developments in these prices a little extra closely. in recent years foreign investors have become more interested in the swedish commercial property market. in 2006 foreign investors accounted for just over 40 per cent of all investments in the market. in terms of financial stability, this development has both advantages and disadvantages. more foreign participants mean that the risks are spread to different types of investor, which is positive. it also contributes to making the