bodil nyboe andersen : recent economic developments in denmark speech by mrs bodil nyboe andersen, governor of the national bank of denmark, at the annual meeting of the association of danish mortgage banks, copenhagen, 30 april 2003. * * * we live at a time when the global economy is hard to get going. growth is low, stock prices have fallen by 40 - 50 per cent in three years, and interest rates are at a historically low level. in recent months, the “ geopolitical situation ”, a euphemism for the conflict in iraq, has been used to explain the extraordinary uncertainty currently affecting all economic forecasts. now that the military situation has been clarified, focus is returning to the structural problems affecting the large economies of the usa, japan and the euro area. japan ’ s structural problems have been discussed for 10 - 15 years without getting any closer to an actual solution, i. e. economic and political reforms. the expectation is rather that, as time passes, the cyclical downturn will have reached a point where the economy sooner or later recovers by itself. the structural problems faced by the euro area are especially related to the rigidity of the labour market, and to very high and rising unemployment, especially in the two largest euro area member states. these countries also typically have the largest budget deficits. so there is no scope to stimulate demand via fiscal policy. this would be in conflict with the requirements of the stability and growth pact, and would entail even larger structural budget deficits. when the economy was stronger, these euro member states failed to improve the underlying fiscal position, and in several countries it was even weakened. therefore we now face a situation with large structural budget deficits, and have forfeited the flexibility which the stability and growth pact is intended to give. for a number of years the usa has been the locomotive driving global growth, and the end of the 1990s saw an exceptionally strong boom in the usa. during those years, the usa built up a large current - account deficit. many other countries would have faced considerable problems with financing a current - account deficit that expanded from around 1½ per cent to 4 per cent of gdp in three years. but at the same time the rest of the world wanted to increase investments in the usa, especially equity investments. therefore the large deficits were easy to finance, and the dollar in fact rose in those years. now that the economy is growing less strongly,

certain parts of the economy, especially in the services sector. this was dealt with by the slovene authorities and consumer associations, by means of the long dual pricing period and price monitoring teams, to name a few. let me stress that the citizens of slovenia play a very important role here : the consumers in a market economy have a major influence on price formation. consumers will be a major force in preventing any unjustified price increases. ladies and gentlemen, let me again congratulate to all the achievements of the process of euro adoption in slovenia and give my warm welcome to the new member in the family of the eurosystem. bravo, slovenija!