bank had a residential mortgage portfolio that was not particularly exposed to risk. the bank had, however, expanded rapidly over several years, an expansion that was partly based on short - term market funding. when funding markets failed, the bank promptly encountered liquidity problems and was compelled to turn to the bank of england for support. when it became known that the bank had sought government support, depositors quickly lost confidence and the uk experienced its first bank run since 1866. many other banks that were considered to be solid under the applicable regulation also encountered problems when financial market confidence evaporated. something worked : the imf, g20 and wto the imf is an organisation for international cooperation based on a system of mutual assistance among member countries. the imf provides loans to countries experiencing balance of payments problems. the loans are financed by member countries. if the problems stem from economic policy mismanagement, the loan will be subject to specific requirements such as measures to correct policy. when the crisis occurred, the imf reacted swiftly to accommodate the increased need for imf services. the imf ’ s role as lender and interlocutor with the authorities in crisis - hit countries probably helped to limit the crisis. the imf provided support and assistance to countries that were directly affected by the crisis and countries that were innocent bystanders. the sharp increase in imf lending reduced the financial resources of the organization. member countries have now increased their contributions to the imf. during the financial crisis, the g20 has played a prominent role in the international coordination of economic policy. the group launched several important initiatives during the crisis, which were subsequently placed under the responsibility of the imf. all countries stand to benefit from the establishment of international meeting places that the major economies consider to be of interest. however, unlike the imf, the g20 is not a representative body for all countries. even if the g20 account for a large share of global output, most countries are not included, such as low - income countries and regions like most of africa, the middle east and the nordic countries. one possibility is to develop the g20 based on the imf model where countries are represented through constituencies. small 163 / 2009 countries like norway, or at least the nordic countries, could then be represented in a forum for discussion of the policies of major economies. in the wake of the great depression of the 1930s, protectionist measures were introduced in many countries. customs duties were increased to shield domestic

and actions. monetary policy ’ s role is to ensure low and stable inflation. experience shows that we cannot reduce unemployment over time by simply accepting somewhat higher inflation. in many countries, including norway, confidence that inflation will be held at bay has increased because interest rate setting has been delegated to the central bank. we are now in a period where petroleum wealth is being invested in foreign financial assets via the government petroleum fund. the government is to gradually phase in petroleum revenues into the domestic economy by using approximately the expected real return on the fund. the fiscal rule was established in 2001. growth in public spending started to accelerate in 1997 from its low level in the mid - 1990s. spending growth has also been fairly strong in recent years, but perhaps somewhat slower than earlier. the fiscal rule for the budget implies that the government can use 4 per cent of the fund over time. this year, a little more than 6 per cent is being used. the deviation partly reflects an unexpected shortfall in tax revenues in recent years. the government budget deficit is the difference between total revenues and total spending. they each account for about half of total gdp in norway. even small deviations from spending and revenue projections can have a major impact on the deficit. exchange rate changes will also lead to fluctuations in the value of the petroleum fund. for these reasons alone, the use of petroleum revenues may in periods deviate from the 4 per cent rule. spending was also increased in response to the economic downturn. we can therefore safely affirm that the fiscal rule has been normative for fiscal policy. at the time of the introduction of the fiscal rule in 2001 projections pointed to a continued increase in the use of petroleum revenues. we had to expect this growth in spending to lead to weaker competitiveness in norwegian manufacturing, either through higher wages or an appreciation of the krone. with wage growth in norway higher than abroad, the competitive position of norway ’ s manufacturing industry has weakened by about 15 per cent since the mid - 1990s. competitiveness is about 4 per cent weaker than the average for the past 30 years. the krone has been influenced by high oil and gas prices and prices for other norwegian export goods. monetary policy has also influenced the path for norway ’ s relative costs, but the nominal value of the krone is about the same as 10 years ago. strong growth in public spending and expectations of moderately higher growth in the use of petroleum revenues now seem to have been factored into the cost level. over the