. our labour market is particularly interesting, and the way we make flexibility go hand in hand with social security. what we see now is the result of many years'development of the danish model. this is a never - ending process. good reforms require careful preparation and considerable time. ideas need to mature to ensure support for the reforms. the process is important to achieving a good result. the fixed - exchange - rate policy means that the level of danish interest rates is generally determined abroad. this also implies that it does not always match danish needs. in practice, this has not constituted a problem. fiscal policy has been designed so as to avoid both overheating and high unemployment. a forward - looking and reform - oriented policy usually means that only minor adjustments are required in connection with the annual finance act. therefore, it is important to keep sights on long - term objectives all the time. in this context, experience from other countries can be useful. the netherlands is currently struggling to get out of a recession that is self - inflicted. a favourable economic climate in the late 1990s led to large government surpluses. some of the surplus was used to finance e. g. tax cuts, and the economy overheated. however, the consequences were not evident until a late stage. wages soared, and so did unemployment, and suddenly government finances showed a large deficit. it was necessary to tighten policy in the throes of a recession that only now seems to be receding. the lesson is : do not spend the surplus when the economy is good – particularly if there is the slightest risk that competitiveness will suffer. the danish economy has developed favourably in recent years. this is naturally very satisfactory. unemployment has declined and is now at a low level, private consumption is increasing by leaps and bounds, and yet we have a current - account surplus and cash is flowing into the government coffers. it is almost too good to be true – and there is indeed reason to exert some caution. demand is still strong – and perhaps a little too strong. we do not know for certain. but the day, we do know that things are going too fast, we will have some unpleasant years ahead. at that point it will be too late to make adjustments without considerable costs. the challenge we face today is to ensure a balance that will enable us to reduce unemployment even further. we need to bring more of the weakest in society permanently into the labour market – and that will not be possible

fall in non - performing loans, which would have been unthinkable if we had kept rates higher. it is certainly easy to blame the ecb, but the truth is that the level of the interest rates is not the main problem for many banks. the problems are, rather, the need for some business models to evolve in directions that strengthen banks ’ capacity to successfully face competition, as well as tougher regulation. also in spain, the squeeze on unit margins is not only due to low interest rates, but is also the result of competition. part of this may also be due to the fact that the banking sector in the euro area has not undergone sufficient consolidation. the new measures are improving liquidity conditions for the banking sector, but can they provide solutions to its capital needs? our measures have had a positive impact on banks ’ profitability and thus, indirectly, on their capital positions. for example, the relatively favourable lending conditions enable them to reduce their funding costs. as i said, the new tltros will reinforce these beneficial effects on banks ’ profits. more than in the past, when our long - term liquidity operations were positive mainly for banks ( including of course spanish banks ), the new tltros will benefit both banks and the real economy. bis central bankers ’ speeches do you think the new refinancing operations ( tltros ) will be welcomed by the banking sector? we believe that the new tltros will be even more favourable than the previous series and will be successful in helping to ease financing conditions. even if the banks don ’ t turn to us because they don ’ t want to be overly dependent on the ecb, knowing that they have this option will give them sufficient comfort to keep credit flowing to the economy on attractive terms. the ecb ’ s actions have also provoked criticism from political circles, particularly in germany. how far can the ecb go without political backing? it ’ s our belief that we have a lot of political support in europe. our policies are dictated by decades of monetary thinking and best central bank practices. the deutsche bundesbank has been the champion of this thinking and these practices. central bank independence and low and steady inflation are written into the german founding law. in my opinion, the alternatives proposed by those criticising us are not very credible. if we raised interest rates now, it would no doubt abort the recovery of the economy and compromise the achievement of our objective. and what ’ s your assessment