result, pricing is disrupted and liquidity drastically decreased, which in turn implies falling asset values and further losses in the financial industry. the fact that the problems to a large extent have been driven by financial markets breaking down, rather than by individual institutions credit risk exposures, explains the unprecedented international impact of the crisis. globally interconnected markets have resulted in a situation in which financial institutions everywhere have been hit, even if not exposed to the institutions or assets at the core of the crisis. my home country sweden is a good example of this. what we have witnessed in recent months, since the default of lehman brothers, is the acute phase of a global financial crisis. to respond, authorities have taken action to prevent a systemic break down of the financial system. both the us and the eu have delivered financial support plans committing governments and central banks to providing the necessary support to the financial industry. these plans are now being implemented and we cannot yet be certain of their success. however, in my view, the support plans contain the necessary measures to solve the most critical issue right now, namely to restore market confidence by providing guarantees to creditors that their money will be repaid. therefore, the prospects for restoring financial stability and enhancing the availability of credit for firms and households should be good. that the support plans also provide measures for government capital injections and takeovers is obviously good, but for the purpose of getting markets to function properly ownership issues really are of secondary importance. after all, what creditors are looking for is to get their money back. to them it should not really matter from where or from whom that money comes. even if it is too early to tell, we can see that the financial support plans have contributed to a certain degree of recovery in the markets. interbank rates are falling, credit spreads are narrowing and liquidity is returning in some markets. however, most of the content of the support plans is directed at handling the most pressing problems in the financial system. in the longer term other measures will be needed, and this is what i will discuss now. what are the future challenges? let me first say that we need to realise that times of financial turbulence are unavoidable and something that we have to learn to live with. what is important is that we learn from previous experiences and use this knowledge to lower the probability of future crises occurring, and when they actually do happen, to mitigate their costs. we also need to realise that despite the many similarities between various crises they are

will probably last for quite some time to come, which means that the policy rates of central banks will on average be on a lower level. this may, in turn, limit the scope of central banks to tackle economic downturns by cutting policy rates. say, for example, that the repo rate will on average be around 2. 5 per cent, that is, at the lower bound in the riksbank ’ s assessment of the long - term level. that does not provide much leeway down to zero. as we have shown, it is possible to lower the rate some way below zero but it is clear that there may be less scope for rate cuts than previously. discussions are ongoing among central banks as to what the significance of low interest rates will be for monetary policy and how the scope for monetary policy to act in economic slowdowns can be increased. one conclusion is that complementary monetary policy measures of the type used by many central banks in recent years, such as the purchasing of various assets, may become more common in the future. other feasible measures in the monetary policy toolbox are loans directly to companies via banks, and foreign exchange interventions. 11 the new environment also affects other policy areas another possibility is other policy areas being used more actively to stimulate the economy in times of recession. in the international debate, it has, for example, been said that the limitations imposed on monetary policy by the low interestrate environment mean that fiscal policy may need to contribute to stabilisation policy to a greater extent than before. 13 i think, to start with, that it is important to point out that monetary policy has not be exhausted as a result of the policy rate being lowered as far as is practically possible. as i just mentioned, there are several tools in the monetary policy toolbox that can be used if need be, in order to stimulate the economy. that said, there are obviously feasible tools in other policy areas as well. and it is reasonable to evaluate the costs and benefits of using all these different tools so that economic policy is as efficient and effective as possible for the economy as a whole. but how the various tools are used is a matter for those responsible for the different policy areas and as regards fiscal policy, it is of course the riksdag and the government that determine how and on what grounds it is to be conducted. price stability still the basis for monetary policy in conclusion – the decade we are emerging from was characterised by crises and a deep, long -