been somewhat higher the last ten years. the target is approximately in line with the average inflation rate in norway in the 1990s. in our view, with its change in monetary policy, the government has recognised low inflation as a benefit in itself. history has shown that high inflation does not result in either sustained economic growth or lower unemployment rates. a track record of low inflation since 1990 has provided norges bank with a good basis for implementing monetary policy even though, as i mentioned, the inflation target was introduced during an upturn. higher interest rates curb demand for goods and services and reduce inflation. lower interest rates have the opposite effect. if evidence suggests that inflation will be higher than 2½ per cent with unchanged interest rates, the interest rate will be increased. if it appears that inflation will be lower than 2½ per cent with unchanged interest rates, the interest rate will be reduced. there is symmetry here. it is equally important to avoid an inflation rate that is too low, or deflation, as it is to avoid an inflation rate that is too high. when the annual use of petroleum revenues is managed according to a long - term action plan, a policy for which there is currently fairly general political consensus, we should normally be able to use the interest rate as a policy instrument to prevent high inflation. normally, monetary policy should also be a fairly effective means of countering a deflationary recession. stagflation, ie stagnating output and rising unemployment combined with rapid inflation, which characterised economic developments in many countries in the 1970s and 1980s, originates in the supply and output side of the economy or in income determination. if the norwegian economy should ever be threatened by stagflation tendencies, monetary policy must be directed towards maintaining low and stable inflation. at the same time, structural policy and incomes policy should contribute to improving the functioning of the economy, allowing economic growth and employment to pick up. a change in interest rates is not expected to have an immediate effect on inflation. our analyses indicate that a substantial share of the effects of an interest rate change occurs within two years. two years is thus a reasonable time horizon for achieving the inflation target of 2½ per cent. therefore, the inflation outlook in two years may be viewed as a derived objective in monetary policy. in some situations, where unexpected events lead to an inflation rate that is too high, it may be appropriate to apply a longer time horizon than two years. for example, reducing inflation to 2½ per cent within

the governments to take steps before we do what we have to do as a central bank. that would be an easy way ; it is not my idea of the ethics of responsibility for those who bear public responsibilities, and this is not in accordance with the text of the european treaties, which require us to fulfil our mission whatever may happen. the eurosceptic parties are gaining strength at each election and it shows that people are fed up with current policies, which are reflected in social decline. isn ’ t there a risk that the states are politically paralysed? that they are fed up is no surprise! one cannot blame the people for that ; it ’ s a moral and democratic question. it ’ s up to the european authorities and the governments to show that they can create growth and push down unemployment – something they haven ’ t managed to do convincingly since the crisis started. now the risk is that this fed - up sentiment creates a spiral of defiance : if there are no convincing results, people ’ s confidence in european institutions and in the community construction is undermined. there is no solution without europe : one cannot sustainably boost french growth if there ’ s no strengthening of german and italian growth. in some area it ’ s even necessary to have “ more ” europe. but to achieve this, it ’ s necessary to restore people ’ s confidence in europe and to do that growth is needed. hence the symbolic importance of the juncker plan, which shows the determination of the governments to create growth. if syriza wins the election in greece on 25 january, will there be a risk that greece leaves the euro as some in germany seem to be thinking? it ’ s not a question of greece exiting the euro. what ’ s at stake in the election lies elsewhere : it ’ s the composition of the mix of reforms which will allow this country to come out of the crisis once and for all, and to reintegrate the european economies ’ concert. depending on the result [ of the election ], the reform strategy in greece will be different, that ’ s normal. that ’ s democracy, and it ’ s up to the greeks to decide. greece has fully benefited from european solidarity : whatever the election result may be a discussion is needed between this country and europe to know how these reforms will fit into the european framework and how they will put greece on a path of sustainable growth which will permit the country to repay its debt to europe one day. bis central bankers ’