a target to be met sometime in the future. and by then things will have improved, or so we assume in our planning. now the structural balance will be an annual target which can only be deviated from in exceptional circumstances or in the event of a severe economic downturn. will the new fiscal compact mitigate the debt crisis? first and foremost, the new fiscal compact is aimed at preventing a recurrence of the present situation in the euro area – with a debt crisis in several euro area member states that is threatening to spread. here it could be argued that serious observance of the existing rules combined with responsible macroeconomic and macroprudential policies could have provided the same result. the fiscal compact and other initiatives will ensure that deviations are to a larger extent exposed – and addressed. bis central bankers ’ speeches so agreement between the euro area member states and other member states on the fiscal compact may help to boost market confidence in europe in general. but the present debt crisis should primarily be addressed through direct measures in the member states in question and via the international assistance programmes already in place. so what are the advantages of the compact? the main advantages of aiming for and realising a structural balance are that growth in government debt over the business cycle is curbed and that each member state has fiscal scope to stimulate its economy in a recession. the foundations must be laid when the economy is not under pressure. the fiscal scope is greater if the structural balance is positive. but it is important to realise that aiming for sound public finances is not enough. wage and productivity developments and other structural factors impacting on competitiveness, the labour market and the balance of payments must also contribute to a sustainable development. this is also an element of fiscal policy. viewed in a broader perspective, the fiscal compact – together with the new six - pack, which focuses on issues such as member states ’ broad macroeconomic development and tightens the sanctions regime against euro area member states – is a prerequisite for preventing future debt crises that bring the coherence of the euro area into question. like other eu member states, denmark has benefitted hugely from the european project, including the single market and the euro. this project cannot be rolled back without substantial costs. so it is very much in denmark ’ s interest that the european project does not strand. are there no drawbacks or reservations in relation to the fiscal compact? in an ideal world, i believe that each member state should be free to conduct responsible economic

sarb. rather, they are focused on the contribution that particular individuals can make to the monetary policy decision - making process. but within these constraints, we also have to be mindful of the gender composition of the mpc, which is currently all male. this explains the absence of a full complement as provided for in the terms of reference, and it is something that we are working hard at to rectify. every monetary policy decision is an outcome of in - depth discussion and debate. even a'no change'decision is a policy decision. i should also note that the monetary policy decision is not a one - off event ; it is a continuous process which culminates in the mpc meeting where decisions are finally taken. we are constantly talking to each other, discussing what we see and how we interpret what we see. these discussions are not only amongst mpc members, but also with other staff members in the sarb who keep us updated about developments. we also interact with analysts outside the sarb, and we hear what they are thinking as well. a few days before each meeting we receive further documentation prepared by various units in the sarb, so by the time we have the mpc meeting, we are well prepared! mpc meetings last three days. the first day of the mpc meeting is devoted to discussions about global and domestic economic and financial market developments. this part of the meeting is attended by the mpc as well as about 55 other staff members. each presentation is followed by a discussion, where we interrogate the presenters and their colleagues. all attendees are invited to contribute to this discussion. at this point, however, there is no discussion of the policy stance. the following morning is devoted to a discussion of the forecast. these deliberations are attended by some members of the modelling team as well as about eight other senior officials, apart from the mpc members. the outputs of two of the main models are presented and discussed. page 6 of 10 given the centrality of the forecast, it is important to say something about the role of the forecast in the monetary policy decision - making process. monetary policy acts with a lag. according to our models, the full impact of a change in interest rates could take between 12 and 18 months to fully work its way through the economy to impact on gdp1 and inflation. for this reason, monetary policy decisions need to be based on the expected path of inflation and not on current inflation, which is a function