took place more than five years ago, and denmark ’ s fixed - exchange - rate policy today enjoys unique credibility in the market. the present central rate vis - a - vis the euro represents a conversion of the exchange rate between the d - mark and danish krone fixed in january 1987. why could we weather the storms despite all the arguments that the system is so vulnerable? the short reply is that we have taken great pains to follow the “ rules of the game ”. first, we have used monetary policy solely to stabilise the exchange rate - whether or not the necessary interest rate was appropriate in relation to the domestic economic situation. monetary policy has been earmarked for exchange - rate stabilisation. second, it is just as important that fiscal policy has “ come through ” - to use a modern expression. fiscal policy has been responsible for ensuring stable and credible macroeconomic development in the medium term. adjustments have been made primarily in connection with the annual finance acts. nevertheless, in isolated cases specific measures were required. the latest example is the whitsun package of economic measures in 1998. the other main point of criticism of fixed - exchange - rate regimes is that a flexible exchange rate is necessary to shield the economy from external shocks. the same argument is used against participation in a monetary union. the hypothesis is that a flexible exchange rate allows such external disruptions to be reflected in the exchange rate. following the ems crises at the beginning of the 1990s, a number of those countries which had to give in to speculative pressure chose to let their currencies float. this enabled them to use monetary policy - i. e. the interest rate - to stabilise domestic demand and thus inflation. a new inflation - management model was introduced in monetary policy, the so - called inflation targeting model. new zealand and canada had already applied this approach for some time. however, it was the bank of england and sveriges riksbank that primarily developed the principles of this policy in close cooperation with academia. central banks applying inflation targeting aim at influencing the economy by solely using the interest rate to keep inflation two years ahead within a defined interval, typically 2 or 2½ per cent plus / minus 1 per cent. the interest - rate decisions are taken by a committee based on economic projections, model calculations and personal assessments. the ecb has a clear objective of price stability which is interpreted as an inflation rate below but close to two per cent. the ecb ’ s interest - rate decision

at the same time the netherlands has tightened fiscal policy considerably, including significant expenditure cuts. this also reflects a procyclical approach, but the dutch want to keep the budget deficit below three per cent in compliance with the stability and growth pact. if only all euro area member states were as determined as the netherlands. this example shows how succumbing to relaxation of fiscal policy in good times can lead to highly unstable development. the consequences of activist fiscal policy may be entirely different from what was expected. in denmark, changing governments have been well aware of the risk that economic policy could go off course - precisely because of the potential vulnerability of the fixed - exchange - rate policy. therefore, in denmark more than in most other countries, the watchword has been “ stability - oriented economic policy ”. and everyone has accepted that monetary policy in itself could not contribute to domestic stabilisation, as it was earmarked for stabilisation of the exchange rate. as mentioned, this increases the responsibility imposed on fiscal policy. fiscal - policy “ activism ” has been avoided, and a largely neutral fiscal policy has been pursued. the shocks of frequent fiscal - policy changes have thus been avoided. the internationalisation of the financial sector and the eu ’ s single market for financial services have been key issues for many years. many rules and regulations have been made to facilitate this development. the primary purpose has been to create a level playing field. another purpose has been to facilitate cross - border activities. all this has contributed to making the financial markets more open and competitive and giving customers the advantages of a large market. in reality, large financial corporations have a national affiliation even if they have foreign ownership. they are mainly in contact with national authorities such as a country ’ s financial supervisory authority, central bank, deposit guarantee scheme and ministries. however, developments in the nordic banking market in recent years indicate that we may be headed for integration of a magnitude that will significantly change the national relations. this will make it more difficult for the authorities to observe the traditional national borders. one very specific field where this will be evident in practice is statistics, as it applies the concepts “ domestic ” and “ foreign ”. if a financial group operating in several countries brings together certain activities in one country, it may cause strange shifts in the statistical information, which by no means indicate underlying changes in the transactions conducted. the statistics may no longer present an accurate picture. such restructuring within cross - border groups will require a new approach from the