1930s. the escalation of the financial crisis on 15 september was a consequence of an abrupt loss of confidence and credibility in the financial markets. the banks ’ trust in other banks dropped to a level where interbank lending almost came to a complete halt. confidence and credibility is the core in money and finance. what good is a 100 dollar note if there is no trust in its worth to buy 100 dollars of goods and service. when confidence and credibility have been destroyed it may take a long time before they are restored. an example from norwegian monetary history illustrates this. the example is from the time of the birth of norges bank. the successful establishment of norges bank in 1816 played a key role in stabilizing the external value of the norwegian currency after the chaos following the napoleonic wars in europe. the previous joint currency with denmark had collapsed and two attempts to restore the currency based on broad guarantees had failed, first from the danish government in 1813 and second from the hastily called constitutional assembly in 1814. the successful restoration of credibility in the norwegian currency was finally brought about by the establishment of norges bank, but it took a long time. norges bank was in full operation already in 1818, but since the parliament postponed the decision to reintroduce silver convertibility, the value of the notes continued to fall until the parliament changed its strategy in 1822. in this year a course to reintroduce silver convertibility was set. convertibility was introduced, first at poor ( low ) rates far from silver parity, but as confidence improved the convertibility rate was gradually moved closer to parity. this process took painstakingly long and it was not until 1842 that full convertibility at par values against silver was reintroduced after 85 years with a paper money standard. from the time when the strategy was laid in 1822 it took more than 20 years to build enough credibility to sustain full convertibility even after norges bank had been successfully established. during the first century of its operations norges bank exercised a high degree of independence from the central government and built a reputation of credibility and confidence in defending first silver convertibility and thereafter gold convertibility. during the heydays of the classic gold standard in the four decades preceding wwi, recent research on dylan, bob ( 1964 ), the times they are a - changin, columbia studios. monetary policy ( øksendal, 2008 ) 2 finds that credibility and confidence allowed norges bank more room for discretion than has previously been acknowledged

wage growth on manufacturing industry ’ s competitiveness. with an inflation target, monetary policy has become forward - looking. the high pay increases awarded in last year ’ s wage settlements therefore engendered expectations of higher interest rates. this led to an appreciation of the krone. manufacturing industry is thus faced with a double burden : high wage growth and a strong krone. over the last 30 years, manufacturing has been scaled back in waves, particularly in the years between 1977 and 1987. in the years leading up to the periods of contraction, profitability in the manufacturing sector deteriorated. it can take time for such a deterioration to translate into lower output and employment. but when the turnaround does occur, it tends to be swift and pronounced. it now appears that a new period of downscaling is under way. several factors point to this. first, a trend analysis suggests that manufacturing employment will decline in the years ahead. this is partly related to an expected decline in petroleum investment and somewhat higher productivity growth in manufacturing than in other industries. second, manufacturing costs have increased sharply since 1988 as a consequence of high wage growth. the appreciation of the krone since the summer of 2000 has amplified the deterioration in cost competitiveness. third, as a result of the fiscal guideline, the internationally exposed sector is exposed to additional pressure. over time, the phasing in of petroleum revenues will lead to restructuring and the transfer of resources from the exposed to the sheltered sector. fourth, the response patterns in stabilisation policy function in a different way than previously. in the past, it was generally understood that high wage growth and overheating of the economy must be met by fiscal tightening. today, with the fiscal guideline and inflation targeting, it is monetary policy that is tightened to a greater extent in such a situation. the burden of stabilisation policy is thus at times transferred to the internationally exposed sector. public expenditure grew by 7 % from 2001 to 2002. this is considerably higher than the growth in value - added in the private sector of the mainland economy, which is estimated at around 4 %. real growth in public consumption is estimated at 1¾ %. in other words, there will only be moderate growth in the production of public services even with a sharp increase in central government allocations. according to the national budget, there will be virtually no growth in public consumption this year. this is because the cost of producing public services is rising substantially, to some extent reflecting the very high level