swedish economy continued to grow at a good rate during the first six months of this year. 1 this is partly because the development of domestic demand has been relatively stable. there are several reasons why sweden has coped so well. sweden ’ s stable public finances, for example, have meant that fiscal - policy consolidation, which has otherwise dominated the economic - policy agenda in several other countries, has not been necessary in sweden. competitiveness has also developed well. this can be seen very clearly if we look again at figure 6. there are also a number of explanations for this positive development. we have had a period in which productivity grew very strongly in sweden for several consecutive years, inflation has been low and stable and pay formation has improved significantly compared with the period prior to the introduction of the inflation target. the fact that the swedish economy has been strong has also led to a resilient swedish labour market, and the number of those employed has continued to increase somewhat during the year. however, the supply of labour has also increased, so that the fall in unemployment we have seen since the start of 2010 was interrupted at the end of 2011. unemployment in sweden is now just below 8 per cent per cent ( see figure 9 ). … but high household indebtedness constitutes a risk another reason why the swedish economy has coped so well is that we have not suffered a crash on the housing market or in other areas of the financial sector. nevertheless, developments in sweden have given cause for concern. housing prices have risen significantly in sweden over the last 15 years in both an international and historical perspective ( see figure 5 ). the same applies to household indebtedness ( see figure 6 ). it is not surprising that there is a link between these factors as a large proportion of the banks ’ lending to households has been used to buy housing. i and several of my previous colleagues on the executive board warned about the risks associated with household indebtedness and housing prices in sweden long before the financial crisis. one could say that the crisis has given these issues renewed and increased currency. a positive factor is that the rate of increase in lending to households has slowed down recently following the very high rates of increase we saw in the years before the financial crisis. housing prices have also levelled out recently. both monetary policy and the mortgage cap have probably played a role in subduing lending to households. 2 however, the debt ratio, that is debt as a percentage of disposable income

currency and banking crisis show that threats to the financial system may indeed emerge suddenly, and that authorities must react very quickly - if not within minutes, at least within hours. the growth and increasing globalisation of financial markets, the high volatility in these markets and the increasing complexity of financial institutions, are all examples of factors that increase the risk for sudden crises and increase the probability that such crises will spread from one market to another. 1. ela as part of general crisis management and resolution should a financial crisis occur, there are a number of measures that may be used by authorities to limit the consequences of the crisis. in addition to ela, examples of these measures are financial support to protect the solvency of institutions, brokering of private sector support to or acquisitions of troubled institutions, management of deposit insurance schemes and insolvency procedures for financial institutions. in general, these measures may be undertaken by different authorities. a consequence of this is that cooperation between authorities is an important element of crisis management. the authorities must have a common strategy for how the crisis should be managed in order to avoid excessive support to the financial sector. excessive support may lead to undue costs to taxpayers and to unsound incentives for the financial sector. in this context, it is important to emphasise that these effects can arise from all kinds of official support. thus, the authorities must limit the support that is offered. support may be warranted only when there is a considerable risk for a systemic crisis that may lead to a severe decline of real economic activity. typically, real economic activity is affected by a breakdown of payments systems or restrictive granting of credit, a credit crunch. traditionally, ela provided by central banks has been seen as a measure to deal with pure liquidity problems in banks that essentially are solvent. in practice, situations where pure liquidity problems arise seem to be rare. in most cases where banks face liquidity problems, there is some uncertainty about the solvency of the institutions involved. typically, it takes time to make an assessment of the solvency of an institution. in the swedish banking crisis, it took many months to fully assess the financial situation of the troubled institutions. not even the institutions themselves had a good picture of how large their problems were. recent developments in the financial system, such as consolidation, the emergence of geographically dispersed financial conglomerates with activity in many product lines and a greater complexity of financial products, make this task even harder. it is unlikely that central banks or