took place in the beginning of 2015. slide 4 : sharp increase in foreign - exchange reserves out of the grey sky, on a cold and dull thursday in january 2015, the swiss national bank announced that it would abandon the floor of the swiss franc against the euro. as some of you might remember, denmark experienced a massive inflow of currency shortly after this announcement. and over the following weeks, we saw unusual turbulence in the danish foreign - exchange market. the massive currency inflow led to a strong appreciation pressure on the exchange rate. the swiss decision seems to have led some investors to look for comparable candidates to abandon a peg. there are not many countries to look for. these investors would make a substantial profit if the fixed exchange - rate policy were to be abandoned and the krone appreciated. we then decided to activate a danish version of open - mouth operation. after we had cut the deposit rate four times in three weeks in the beginning of 2015 to an unprecedented low of - 0. 75 per cent, and the govern - side 2 af 4 ment decided to suspend issuance of government bonds temporarily we launched a targeted communication effort. it was a critical moment and it was crucial to deliver the message that we had no plans to give up the fixed exchange regime at all – and deliver the message without blinking an eye. sales of kroner by danmarks nationalbank were historically large in early 2015. the volume sold within just over one month totalled 275 billion kroner – corresponding to 37 billion euros. it resulted in the sharp increase of the foreign - exchange reserves as you can see on the slide. during the hours after the interest - rate decision i spoke with a lot of media outlets. again and again i told the journalists that we had unlimited amounts of kroner available and we could let the currency reserves grow indefinitely. it is an option that we could use and it was unlimited since the interest differential between dkk and euro resulted in net profit on the currency reserves. … and the communication worked as intended. slide 5 : rohde among sharks in other words : we were and are ready to do whatever it takes. it was an unusual situation and with negative interest rates as low as - 0. 75 per cent we were in unknown territory, but the open - mouth operation worked as intended. we have had negative rates for some years now and so far their implications have been far less exciting or radical than some might have thought before entering the negative territory. basically,

as a ratio of total output has still risen, albeit at a slower rate. my conclusion is that in denmark there is an ingrained pressure to solve problems by increasing public spending, both among politicians and in the population in general. altering that will require a radical change of attitude ; statutory control mechanisms to cap public spending as a ratio of gdp could be the first step. it will be difficult – extremely difficult! but it is unavoidable. even if all the proposals in the 2020 plan were to be adopted, we will be facing a lengthy period of sustained government deficits after 2020. so although the deficit remains well below the 3 - per - cent limit in the baseline scenario presented by the government, we still risk being hit by large government deficits in connection with the cyclical downturns that tend to occur from time to time. for this reason it is important to have automatic stabilisers in place that can curb cyclical fluctuations. this is the main background to danmarks nationalbank ’ s proposal to phase out deferredamortisation loans and to let property value tax develop in step with house prices. both proposals would contribute to dampening fluctuations in the housing market and hence in the economy overall. * * * in addition to strengthening public finances, we need to boost growth in the danish economy. i am chiefly thinking of measures to increase potential output. this is not achieved through expansionary fiscal policy, but through structural reforms to improve the economic framework conditions and increase the supply of labour. phasing out the early retirement scheme is an example of such a reform. discussions tend to centre on how much this step might improve public finances. that is indeed an important aspect, but we often forget that phasing out the scheme is also likely to contribute to increasing potential growth in the economy in the phasing - out period by preventing a decline in the labour force. in other words, phasing out the early retirement scheme can contribute both to improving public finances and to strengthening the growth potential of the economy, thereby providing a permanent wealth gain. few alternative measures can match that. potential growth is the determining factor for how difficult it will be to achieve the 2020 plan ’ s target of reducing public consumption as a ratio of cyclically adjusted gdp from 29 to 27 per cent. the lower the potential growth, the more painful the process will be. in the coming decades demographics are against us. productivity developments will be of paramount importance to growth in the danish economy. bis