reduction in demand and increasing unemployment, which in turn caused major problems in public finances. the costs of the bank crisis aggravated the central government budget problem at the same time. monetary policy, focused on stable prices, has played an important role for creating balance in the swedish economy. this favourable development would not have been possible, however, without a responsible fiscal policy. the serious consequences of overheating at the end of the 1980s also seem to have created a general insight that sacrifices were necessary for a time to bring the swedish economy into a state where the conditions for sustainable growth and high and stable employment could be created. the problems after the high inflation years have probably also contributed to creating a broad support for the inflation targets of monetary policy. laboriously won improvements must be safeguarded it is important now both for macroeconomic policymakers and otherwise in sweden to avoid as far as possible the reappearance of the problems that were overcome with great effort in the 1990s and to avoid new imbalances being built up. the role of the riksbank here is to ensure that price stability is maintained and to ensure the stability of the payment systems. after the financial crises that affected the world economy during the 1990s, a number of proposed measures aiming at preventing new crises have been discussed in various international contexts. many measures have aimed at increasing the so - called transparency of the financial systems so that the agents in the markets were able to base their decisions on realistic assessments. my intention here is primarily to discuss the role that monetary policy can have to counteract financial imbalances being created as a consequence of rising asset prices. let me first briefly describe the role of monetary policy in an economy that is in balance. when the economy is in balance and the long - term inflationary expectations are in line with the target, there are good prerequisites for monetary policy aimed at an inflation target also leading to cyclical swings being evened out and that production will increase apace with the supply of labour and productivity growth. this is due to fluctuations in inflation in an economy in balance largely being related to fluctuations in real demand and the use of resources in the economy. stable inflation and stable inflationary expectations also favour long - term growth, which is the reason for monetary policy being given the task of maintaining an inflation target. since the means of monetary policy - the short interest rate - affects inflation with a time lag of one to two years, the design of monetary policy must rest on forward - looking assessments

##ation policies in order to avoid tensions. pierre werner, prime minister of luxembourg, and the central bank governors on his committee proposed an economic policy centre that would control national budgets, regional, structural and social policies. the whole process would be crowned by the single currency. when the bretton woods system collapsed and the oil crises erupted, national considerations put a stop to the werner plan. with the advent of the eu ’ s internal market in the 1990s, however, the issue of a common currency was revived. national currencies came to be seen as the last major barrier to the internal market ’ s full impact, which would pave the way to even greater european integration. to a large extent, the driving force behind the werner plan and the maastricht treaty was political. experience has taught us that institutionalised economic cooperation can be an antidote not just to trade conflicts but even to war. a common currency is a strong political symbol that can render cooperation durable in the daily economic round. instead of being just a topic for solemn speeches on television, european cooperation with a single currency could be something real that people carry around in their purses and pockets. but the maastricht treaty was, of course, also backed up by the strong economic forces that lay behind previous attempts at monetary union. by reducing exchange risks for firms, a single currency facilitates cross - border trade and investment. it also helps to integrate capital markets, rendering them larger and deeper, which aids the supply of corporate capital in europe. these considerable effects are accompanied by others that we ought not to underrate. in the present situation, moreover, they are likely to be enhanced by the internet and other new information technology. not the least of these is that the monetary union eliminates the psychological barrier that different currencies raise when we try to compare prices in different countries. the result is greater transparency and stronger price competition. price differences in europe today are twice as large as in the united states. the price of a small car, for example, can vary more than 50 % between eu member states. risk of countries getting out of step however, the road to greater cohesion is not necessarily smooth. in a monetary union, forces are at work that may cause member states to develop in different directions instead of converging. discussions about emu often raise the topic of asymmetric shocks, a technical term that stands for something quite simple. the conditions for the countries involved differ initially as regards their economic structures