might also ease if their interest rates fell on account of ‘ borrowed ’ credibility from the german economy. the stability and growth pact was initiated by germany. it means that all eu countries — and thus non - euro countries such as sweden — are bound by the rules for fiscal policy and its surveillance after the move to stage three. each country is to strive for budgetary positions close to balance or in surplus in the medium term. this is intended to allow the automatic stabilisers free play while keeping the government deficit inside the 3 per cent limit. in this way the pact provides for some flexibility in fiscal policy, which may be particularly important when there is no recourse to exchange rate adjustments. if the budget deficit exceeds the 3 per cent limit, sanctions can ultimately be imposed on the country in question if the problems are not tackled. it is only in exceptional circumstances that this may not apply. a surveillance procedure has been established for monitoring developments ; national stability programmes are to be presented at regular intervals, showing how the goals are to be fulfilled. this process is perhaps as important in practice as the threat of sanctions. the establishment of clear rules and sanctions is intended to support the forces in each country that favour a disciplined fiscal policy. the sanctions do not apply to non - euro countries and they submit convergence programmes instead of stability programmes. so what has happened so far? the assessment of convergence or stability programmes from all the eu countries this spring shows a mixed picture. it is clear, however, that the ambitions of most countries still fall short of the requirements in the stability and growth pact. this is certainly attributable in part to the economic slowdown, with italy as the clearest example. but it is also notable that the ambitions for budget consolidation are now lower than before the move to stage three. the relatively good growth during 1998 ought to have left room for budget consolidation in many countries but it was not used and in certain countries the structural deficit has actually increased. the ecofin council has in fact criticised a number of countries, including germany, france, austria and the netherlands, for the low level of ambitions in their stability programmes. in sweden, the budget position looks comparatively healthy. our fiscal policy is likewise less restrictive than before but the structural deficit has been turned into a surplus that is now growing and the ambition is still to achieve a budget surplus of 2 per cent of gdp on average over the business cycle. at the same time it should be underscored that some variation in the

s corporate sector, which stemmed from the 1960s, simply did not work. if anything, the devaluations meant that the problems persisted and were accentuated. with the lack of investment in new products and the dependence on an increasingly outmoded structure of production, the entire nation ’ s material standard had to be adjusted. for many years, growth in sweden was weaker than in the world around us. this example shows how a “ new economy ” at that time posed problems for the swedish economy rather than opportunities. the lack of change, because wage formation did not function properly, resulted in an economy that was weaker and more susceptible to inflation. the period clearly illustrates how globalisation, increased competition and new technology can lead to lower growth and higher inflation if changes are not made sufficiently quickly. if the economy is under pressure from strong competition as well as poorly functioning wage formation, economic renewal may lag behind. it is therefore gratifying that the labour market organisations seem to be increasingly in favour of the inflation target policy. many representatives of trade unions and employers express a strong ambition and determination to arrive at wage increases that are commensurate with the macroeconomic situation. this is all to the good. but the fact remains that even in recent years, the rate of wage increases in sweden has been higher than in major competitor countries and also above the macroeconomic potential. real wage increases in excess of productivity growth enlarge the wage share and reduce the gross profit share. that is what is happening now in sweden. bit by bit, at least a part of the increased profit margin that resulted from the krona ’ s fall in the autumn of 1992 is being eroded. this is a difference from the united states. there the economy has entered what might be described as a good spiral, where higher productivity increases and comparatively moderate wage increases have generated profits that help to drive new investment in advanced technology. in such a process, unduly high wage increases can bring the changes to a halt, as happened in sweden in the late - 1960s and early - 1970s. present economic assessments do not generally suggest that a break is imminent in the path of swedish wage formation. so will this have a negative impact on the propensity of firms to invest in the new technology? the financial system this brings me to the significance of the financial system and access for corporate financing in the transitional phase. are there differences between europe and the united states that may have a bearing on the pace with which new technology