kerstin af jochnick : a springboard for the monetary policy meeting in september speech by ms kerstin af jochnick, first deputy governor of the sveriges riksbank, at a meeting at danske bank, stockholm, 21 august 2012. * * * it has become something of a tradition for us members of the executive board of the riksbank to hold a speech at the end of august about the current economic situation and developments during the summer. i think that this is a tradition worth upholding. true, not many people here today manage to completely cut themselves off from world events during their holidays. we still manage to maintain a watchful eye on the inflow of news and statistics. however, although i believe that many of us follow the economic news coverage during the summer months, it may be useful to have a round - up of what has happened. it provides an overview and can act as a “ springboard ” for starting work in the autumn. a natural starting point for me is the assessment of economic developments described by the riksbank in the monetary policy report published in early july. i therefore intend to run through this assessment briefly and comment on my own thoughts at the meeting in july. i shall then try to summarise developments since then. of course, this concerns to a large extent the crisis in the euro area, although some interesting statistics have also been received. i will also mention the on - going discussion on libor and stibor as this has been a major news item during the summer. i have chosen to call this a “ springboard ” for the monetary policy meeting in september. this is not intended to direct one ’ s thoughts to sporting achievements, which can easily happen, given that the olympics are still fresh in our minds. what i mean to indicate is that this is a status report on which to base the start - up of a new process, which for the riksbank is a process that will lead to a new joint economic assessment. i will not be presenting this type of assessment today. this will be released in connection with the next monetary policy meeting on 5 september. the assessment in the july monetary policy report great uncertainty over future developments perhaps the most difficult question we had to deal with at the most recent monetary policy meeting was how an unexpectedly strong outcome in sweden at the beginning of the year should be viewed in relation to increased concerns over poorer developments in the euro area. when we executive board members gathered

spanish and italian government bonds remained high. the uncertainty concerned how to implement and design a joint banking supervision in the euro area, something that is a very large step for the member states. joint banking supervision is, according to the agreement reached at the meeting, a necessary condition for the european stability mechanism, esm, to be able to recapitalise banks directly. the uncertainty was fuelled by the criticism of another agreement reached at the meeting that the european relief funds should be able to buy government bonds to hold back countries ’ interest costs. more details on the loan to the spanish banking sector more details of the loan of up to eur 100 billion to the spanish banking sector were released after the meeting of the eurogroup finance ministers in july. a memorandum of understanding with spain states, for instance, that the exact size of the loan will be determined after a revision of the spanish banking sector during the second half of september. however, eur 30 billion is to be made available this summer as a preliminary bailout for urgent measures. once the joint banking supervision facility in the euro area has been established, the idea is that the esm will take over from the efsf and the loan can be channelled directly to the spanish banks. this will break the links between the crisis banks ’ finances and the spanish government ’ s finances. the european commission has signalled that a proposal regarding banking supervision will be announced in early september. one condition for the esm to be able to take over the loan is, of course, that the mechanism is actually activated. this requires approval from countries that together account for 90 per cent of the capital paid into the mechanism. at present, approval is yet bis central bankers ’ speeches to be given by germany – which is awaiting a verdict from its constitutional court in mid - september. the memorandum of understanding regarding support to the spanish banks makes it clear that the spanish government is expected to carry on with its work on reducing its budget deficit to just below 3 per cent. the time limit they have been given to reach this has been extended by one year to 2014. spain has given an account of its budget plans and the savings to be implemented to reach the target. during the summer the imf has also given strong support to spain ’ s efforts. concern over the situation in spain and italy the market ’ s reactions to the agreement on banking support to spain can be described as cautiously positive. but during the second half of july, concerns increased again when reports were