is also based on economic projections and on an analysis of key economic indicators. the decision - making process is, however, not formalised to the same extent as in sweden and the uk, for example. the federal reserve system has a broader economic objective where inflation not necessarily takes centre stage. in 2001 norway implemented an inflation - targeting regime. this happened gradually after the phasing out of the fixed - exchange - rate policy. denmark is presently the only nordic country to pursue a fixedexchange - rate policy, as finland now participates in the euro area. it is worth examining whether this has led to more unstable inflation and growth in denmark and finland in recent years than in sweden and norway, which both have floating - exchange - rate regimes. to this end danmarks nationalbank has compared the development in the four nordic countries after 1996. the results are published in an article in our monetary review to be published on 4 december. the comparison shows the course of inflation measured as the harmonised index of consumer prices, hicp, that is a general and comparable measure of price development. the message emerging from the comparison is that the variability in both inflation and output has clearly been lower in denmark than in the other countries. it shows that our fixed - exchange - rate policy has not been an obstacle to stable economic development. this is contrary to economic theory about this subject. the article presents possible explanations of this apparent contradiction. one explanation is that in reality, stability is not jeopardised by external shocks, but rather by internal shocks in the form of inappropriate economic - policy changes. history is rich in examples of how the wrong economic policy can lead to instability. a recent example is the netherlands. for a long time the country seemed to perform extremely well and was praised for its strong economy. from the end of the 1990s until two years ago, the netherlands experienced very high growth, which drove up inflation. as a consequence, government budgets tended to improve, of course. but the netherlands did not let this trend prevail so that the automatic stabilisers of fiscal policy could work freely. instead, they introduced a set of “ ground rules ” whereby savings on the expenditure side were used for payment of other, new expenses, while half the revenue improvement could be used to reduce taxes. at first sight these rules looked convincing, but they were clearly procyclical. when the reversal came, performance declined rapidly. this year, negative growth of 3 / 4 per cent is expected.

foremost, the comparative advantages of german firms stemming from their specialisation in consumer durables and high - end capital goods which were largely in demand during the last upswing. the impact of price competitiveness on germany ’ s export strength, by contrast, is often overestimated. finally, the external surpluses by definition also imply that total investment in germany was lower than total saving. given that germany ’ s population is shrinking and growing older, persistent current account surpluses leading to an increase in net foreign assets are a rational reaction to smooth the burdens of aging over time. therefore, the problem has been less about the emergence of current account surpluses in germany and more about how they have been used abroad. in some euro - area member states and in particular those with large pre - crisis current account deficits, the benefits of monetary union, such as lower interest rates and the elimination of exchange rate risk, have not always been used wisely, and have tempted some countries to live beyond their means. now that the financial crisis has revealed the unsustainability of this development, the need for domestic adjustments is becoming more and more apparent. given this, attempts to blame germany for problems in those countries and policy recommendations of symmetrical adjustment needs are questionable. rather, the adjustment process that germany underwent in the decade preceding the financial crisis and which i described earlier may serve as an example. this is not to deny that major challenges for economic and fiscal policy in germany remain. but instead of artificially propping up demand, economic policy should strive to enhance the framework for economic growth. to that end, obstacles to a market - induced and smooth reallocation of resources have to be removed, which would facilitate the necessary adjustments to the changed external environment. three areas of policy action are key going forward : firstly, deregulation to abolish barriers in the services sector might strengthen domestic demand and thus broaden the basis for german economic growth. secondly, with respect to the labour market, important adjustments in the area of temporary and short - term contracts have already been implemented in order to combat high structural unemployment after the last recession. this success, however, should not be jeopardised by a partial reversion of past labour market adjustments. on the contrary, broader labour market flexibility is desirable in order to facilitate domestic reallocation of workers to more profitable sectors. thirdly, the contribution fiscal policy can deliver to enhancing the framework of economic growth – the rapid consolidation of public finances –