– if not even more – if a credible fixed - exchangerate regime is to be maintained. today the macroeconomic fundamentals of the danish economy are sound and fairly robust : low inflation, surpluses on the current account as well as on the general government budget, and a relatively low level of unemployment. however, this has not always been the case! today's firm commitment to a fixed exchange rate in denmark has its background in bad macroeconomic policies and, consequently, poor performance of the danish economy in the 1970s and the beginning of the 1980s. it was the switch to a stability - oriented fiscal policy and a firm fixed - exchange - rate policy during the 1980s that let the danish economy on a path of stable economic development as well as low and stable inflation. 8 the political situation in the 1970s was characterised by frequent elections and short - term orientation of the macroeconomic policy. this resulted in a stop - go nature of the fiscal policy with frequent " packages ". when the first oil crises came in 1973 denmark had already experienced a deficit on the cf. beier, n. c. and pedersen, e. h. ( 2005a ), wages, competitiveness and the balance of payments, danmarks nationalbank monetary review, 1st quarter, pp. 43 - 60. cf. beier, n. c. and pedersen, e. h. ( 2005b ), sea freight and the danish economy, danmarks nationalbank monetary review, 4th quarter, pp. 41 - 56. cf. jensen, h. f. ( 2001 ), costs and benefits of erm ii : the danish experience, in : national bank of poland ( 2001 ), the polish way to the euro, conference 22 - 23 october 2001, pp. 252 - 262. cf. the background paper " the relationship between fiscal policy and monetary policy in a fixed exchange rate regime " to the speech given by governor jens thomsen at the central bank of cyprus on 24 november 2003. an elaboration of the origin of today's fixed - exchange - rate regime in denmark is found in christensen, a. m. and j. topp ( 1997 ), monetary policy in denmark since 1992, in : monetary policy in the nordic countries : experiences since 1992, bis policy papers, no. 2, pp. 5 - 23. current account of the balance of payment for each consecutive year since 1963 leading to a limited room of manoeuvre in economic policy. furthermore, the labour market

some of the world's largest banks, and one bank has been on the brink of failure. these enterprises have had thousands of highly educated and highly paid employees and managers at their disposal in order to avoid precisely such losses. the events have led to self - examination among financial enterprises and authorities who were too late to see the problems and take action. how could the situation get so much out of hand, and how can we prevent this from happening again? much has already been written about the background to the crisis. and i am sure that the course of events will be the subject of many learned papers in the coming years, relying on the advantages of hindsight. basically, financial business is all about forming a link between people who at a given time need to spend more than they own and earn and others who are in the opposite situation. this intermediation enables enterprises to invest in anticipation of future profits. it enables households to buy houses and flats with a down payment of only 20 per cent. and it enables governments to operate with budget deficits from time to time. financial intermediation – at its best – ensures that savers receive the optimum return with the chosen risk profile, and that the most profitable investments are sought. intermediation takes place across national borders, and the financial sector is at the forefront of globalisation. the importance of a well - functioning financial sector to a modern economy cannot be overrated. however, in recent years financial intermediation has expanded at an excessive pace, combined with sophisticated product development – and risk assessment systems and incentive structures have not been able to keep up in the competition for market shares. where this development led to an atmosphere of euphoria, greed and imprudence could prevail. some degree of caution is reintroduced when investors get too close to the fire and burn their fingers. however, other action is also required. it is a safe bet today that rules will be tightened. as the tide is turning, it is a question of striking the right balance between tightening the rules and safeguarding the role of financial intermediation in society. last autumn, the g7 countries asked the financial stability forum ( fsf ) – which includes the ministries of finance, central banks and financial supervisory authorities of major countries, among others – to analyse the factors and weaknesses that led to the crisis and propose solutions to boost the resilience of the financial markets and institutions. the results are interesting to read and ought to be compulsory for