in 2009, with fiscal consolidation taking hold in 2010. this was important in two respects. first, it limited the negative demand effects of fiscal consolidation precisely when the recession was at its steepest. second, it sent a signal that adverse public sector debt dynamics would be addressed over the medium term, thus reducing risk premia in domestic and foreign interest rates facing the sovereign. graph 1 shows the progress that has been made so far with fiscal consolidation and the plans embedded in the fiscal budget for 2011. provided the plans are carried out, the consolidation involved will be impressive in both historical and international comparison, with a roughly 9 percentage point improvement in the non - cyclically adjusted fiscal balance from 2009 to 2012, even though there will be a significant slack in the economy for most of the period. although it has been delayed and has faced obstacles on the way, the reconstruction of the domestic financial sector is far advanced. the three major commercial banks have been recapitalised, with foreign creditors taking a majority stake in two of them and the state holding a majority in the third. at the end of june, all three had capital ratios above 16 %, most of it common equity. as a result, iceland ’ s banks meet basel iii requirements more than two times over. the recapitalisation of the savings banks is in its final stages. in june of this year, however, question marks were raised about the capital position of the banking system when the supreme court of iceland ruled that linking isk loans to exchange rates was illegal. the banking system had a large number of such contracts on its books. the precise scope of the problem was uncertain, but more importantly, it was not clear what interest rates these loans should carry when they were no longer exchange rate - linked. should they carry contractual foreign rates or some typical isk rate, such as the benchmark rate published by the central bank of iceland? in the former case, the blow to the capital position of the banking system would have been very serious indeed, requiring massive recapitalisation and possibly jeopardising the overall stability of the system. those responsible for financial stability gave a sigh of relief when the supreme court ruled in mid - september that loans with illegal exchange rate linkage clauses should carry reference isk rates published by the central bank of iceland. after this decision, it is clear that the blow to capital ratios should be well manageable and only a very limited recapitalisation will be called for, if any. the

kristina persson : globalisation, imbalances and possible ways forward speech by ms kristina persson, deputy governor of the sveriges riksbank, at a conference on social economics, stockholm, 3 may 2006. * * * thank you for the invitation to come here and speak on a topic that interests me very much, both in my role as representative of the riksbank and privately, as a person with a strong interest in social issues. let me begin by saying that i will not be talking about the current economic situation in sweden. the discussion from the most recent monetary policy meeting will be published on 11 may. i shall begin with a run - through of the opportunities and challenges that economic globalisation entails for a country like sweden. i will then go on to discuss the imbalances that currently exist in the global economy, particularly in the exchange of goods, services and capital between asia and the united states. the trade deficit is financed through the global financial markets, which are an important driving force in the globalisation process. finally, i shall talk about some of the reforms currently being discussed within the international monetary fund ( imf ). introduction ten years or so ago the word globalisation did not arise in the public debate, the term used then was internationalisation. the question is whether this indicates that something new has happened? my answer is that a number of political, technological and economic changes over the past 15 – 20 years have combined to bring about a more intensive phase in global economic integration. the political changes can be summarised in the word deregulation, which has released flows of capital, goods and services across national borders. trade barriers and customs duties between countries have declined. 1 the international capital markets were deregulated during the 1980s, which enables a free movement of capital towards investments that have the best return. many product markets, particularly within the eu, have been opened up to competition. large countries, such as china and india, which together comprise approximately one third of the world ’ s population, are rapidly being integrated into the world economy. following the breakdown of the soviet union, central european countries have joined the eu and adopted market economies. technological progress, particularly within the field of information technology, enables rapid and simple communication and money transfers from one part of the world to another, which makes it easier for companies to build up global trade and manufacturing networks. the cost of transporting goods between countries has also declined in recent decades, although the really