norwegian business cycle diverged from that of trading partners. in the period 1975 - 1978 and 1982 - 1988, wage growth was markedly higher than wage growth among trading partners. as a result, competitiveness deteriorated sharply in internationally exposed industries, which in both cases led to a cyclical downturn with low real wage growth and high unemployment, also in sheltered industries. this is a mechanism that will occur again. public sector employees also have to pay for the imbalances. real wage growth for teachers and health sector employees was negative both at the end of the 1970s and the end of the 1980s. around the mid - 1990s these groups also benefited from stable economic growth with low inflation. annual real wage growth averaged around 3 per cent between 1996 and 1998. developments in recent years are similar to those which caused the imbalances in wage formation in the 1970s and 1980s. wage increases in this year ’ s settlement were high. wage settlements in internationally exposed sectors did not set the trend for wages. wage increases in these sectors were around 5 per cent, while they were appreciably higher in a number of sheltered industries. in the education sector, wage growth is nearing 8 per cent this year. adjusted for inflation, this is the highest level of wage growth in any single year since the early 1960s. the central and local government sectors, including the education sector, employ 1 / 3 of all employees in norway. in 2002, wage growth for these three groups combined was 6. 3 per cent. this is close to 1 percentage point higher than the average for the remaining two - thirds. in rural areas, where local government employment is an alternative to working in agriculture, the fisheries, local service production or small - scale industry, the public sector, with its nationwide agreements, is a wage trendsetter. high wage growth in the public sector will thus determine wage growth in other local sheltered enterprises. many of these industries may pass on higher labour costs to customers. wage growth in the public sector may therefore be an important source of higher inflation. public enterprises can only pass on higher labour costs to customers to a limited extent. on the other hand, the rise in costs can intensify pressures to increase central government allocations. many will probably expect the central government to pick up the bill when labour costs rise sharply. the central government budget for 2002 adhered closely to the fiscal guideline. growth in public spending from last year to this year is estimated at 7 per cent. this is considerably higher than

the likelihood of and the fallout from future crises. it would be an inexcusable mistake to miss this opportunity to see through fundamental regulatory reform. we have to address the vulnerabilities that were at the root of this crisis and are likely to be at the root of those in the future. for this purpose, we need simple, effective measures that can be implemented rapidly once the crisis is over. there are intensive efforts under way to increase the resilience of the financial system. with the support of the g20 leaders, the financial stability board ( fsb ) has initiated an impressive number of reform projects. 3 good progress has been made on many measures. in some important areas, however, decisions have yet to be taken. in line with proposals by the fsb, i believe we need to pursue a dual - track approach to reforming the global financial system, combining preventive measures with measures facilitating the orderly resolution of large international banks in the event of a future crisis. an ounce of prevention we have all been told that an ounce of prevention is worth a pound of cure. considering the enormous costs associated with the cure of the current crisis, this holds especially true when it comes to financial stability. most importantly, we need to strengthen the shock absorbers of the financial system. in the context of banks this means that they have to hold more capital and more liquidity. strengthened shock absorbers in the form of higher capital and liquidity buffers have several beneficial effects. bigger buffers enable banks to absorb larger negative shocks without triggering an idiosyncratic, let alone a systemic crisis. furthermore, bigger buffers ensure that banks themselves bear a larger share of their downside risks. not only does this reduce the potential burden for taxpayers, but it also creates stronger incentives for the banks themselves to operate prudently. if shareholders know that they have to absorb potential barry eichengreen and michael d. bordo : “ crises now and then : what lessons from the last era of financial globalization? ”, nber working paper 8715, january 2002. “ report of the financial stability forum on enhancing market and institutional resilience ”, april 2008, and the recommendations and principles to strengthen financial systems that the fsb published on 2 april 2009. future losses rather than passing them on to taxpayers, they will likely become less willing to let management engage in excessively risky activities. ultimately, this incentive effect can help make future crises less likely. strengthening capital requirements the crisis