to allocate their investments between sweden and abroad. as regards the functioning of the financial markets, the unfortunate truth is that this is also a neglected area in many countries on the continent. in some respects sweden has progressed further than the euro area countries in terms of improving the efficiency of the financial system. after the period of deregulation in the 1980s the progress of the swedish financial market has been well in line with what has happened in the anglo - saxon economies in the us and uk. as a result, the equity market has become more important as a source of financing and firms have become less dependent on banks. meanwhile, banks have focused to a greater degree on providing credit and financing opportunities to individuals. thanks to deregulation, more swedes have been able to borrow at a reasonable rate of interest, making it possible for a larger number of people to own their own homes and to better distribute their consumption over their lives. in this respect developments in sweden have largely followed those in the us and the uk. of course such deregulation - or rather reregulation - is not problem - free. the fact that a greater number have the opportunity to borrow also implies increased risks in the financial system. but in the absence of risks, growth opportunities also decrease. the important thing therefore is that the risks can be managed in the event of a crisis, which, for instance, requires strong consumer protection. here sweden has also been at the fore by being the first to publish regular stability reports for the financial sector, with a view to avoiding any reoccurrence of a systemic collapse similar to that at the beginning of the 1990s. there are now signs on the continent that the pace of financial market reform has increased. this is partly because the eu member states, as a part of the lisbon strategy, have agreed to implement the financial services action plan. only last week new steps were taken to harmonise securities trading between the eu member states through the signing of the investment services directive. this affords both private investors and institutions greater opportunities to trade on exchanges other than those in their own country. although sweden in this regard would have liked to go a step further towards full deregulation of the financial marketplaces, it must nevertheless be seen as a step towards freer securities trading in the eu. in addition to developments at the eu level, national reforms are also under way in several countries. in germany the efficiency of the banking system is being improved considerably now that the state guarantees

spoke of earlier are ones that monetary policy normally faces and has to relate to. forecasts change over time and monetary policy has to be adjusted accordingly. we would have a completely different situation, however, if the euro crisis were to worsen dramatically, and there was substantial turmoil on the financial markets and economic activity suddenly dived. in these situations monetary policy needs to adjust to a crisis situation, and we are prepared for this. as a central bank, we need to be prepared to deal with many unexpected events. and we must make an assessment in our forecasts of the probability of these events occurring. a central assumption in our forecasts is that the financial market turbulence will gradually decline and that confidence will gradually improve in the corporate and household sectors. this does not mean that we believe that the road ahead will be straight and narrow. we have to assume that confidence in the countries ’ ability to resolve their problems will vary over time, and during the process different countries will come under focus. when we summarise the measures taken since the worst phase of the crisis last autumn, the european central bank ’ s two three - year loans to european banks were one measure that provided immediate relief. an acute liquidity crisis was avoided and the loans have also prevented a tighter credit crunch than would otherwise have been the case. however, they do not solve the long - term problems faced by many euro area countries, which was not really their aim, either. the loans have given many countries the breathing space to implement reforms, however, and it is important that they make use of this. at the same time the eu countries have agreed on a number of measures for stricter budget discipline. for example, reforms have been decided on that will strengthen the current fiscal policy regulations. these are measures that do not have an immediate effect, but which nevertheless manifest a political will that should create long - term confidence in a crisis that has largely political overtones. reinhart, carmen m. and kenneth s. rogoff, “ this time is different : eight centuries of financial folly ”, new jersey : princeton university press ( 2009 ). bis central bankers ’ speeches when we held our monetary policy meeting in april, greece had been granted a second support package by the eu and the imf, and had reached an agreement with private lenders on a debt write - down in return for promises of fiscal policy tightening. the euro area countries had also agreed to increase the capacity of their rescue funds, which was a step