the european payment system, target, is to be closed on 31 december. the reason for this decision is to enable all measures that need to be taken by the end of the day and the year to be carried out in good time before midnight. the closing of target makes it possible to close down all financial trade within the eu on new year ’ s eve. a further means of enhancing confidence and reducing vulnerability is to establish contingency plans, i. e. measures that will be resorted to should problems still arise in spite of all preparations. such plans are not something that should be unique to the change of millennium ; they should always exist in organisations in the financial sector. many of the measures that have been taken in preparation for the transition to the year 2000 have focused on questions related to confidence. a high degree of confidence in financial markets is important if the markets are to function efficiently. for this reason, anxiety that the functioning of the market may be impaired or a lack of confidence in the payment systems, are enough in themselves to constitute a problem. lately, comments have frequently centred around possible liquidity problems. however, the exact significance invested in the word liquidity is often unclear, as is what, fundamentally, could lead to problems. the word liquidity means “ the capacity to quickly obtain funds for the settlement of debts ”. 1 in practice, the word liquidity is used to express a variety of phenomena. in my opinion, therefore, it may be appropriate to take a closer look at the concept of liquidity and to clarify the role played by the riksbank in managing liquidity. the comment that liquidity in the market is poor often describes a situation in which major price changes occur even when turnover is low. to use market jargon, the market is said to be thin. one explanation for this can be a low level of customer activity. such situations frequently tend to arise at the end of the year, when companies and financial institutions have adjusted their balances in preparation for closing their books and therefore have little interest in modifying their portfolios. judging by comments on the market, there are expectations that the period of low activity in the market at the end of this year could turn out longer than usual. in other words, uncertainty about the effects the change of millennium might have on interest rates and financing possibilities could lead agents on the market to make adjustments to their portfolios earlier than usual. on this view, one possible explanation for why the interest rates on loans and

during the run - up to emu, countries notorious for their inflationary bias have experienced marked disinflation. no longer do people in those countries tolerate price rises. when some retailers tried to raise prices of some products after euro notes and coins came into circulation ( in january 2002 ), people were in a rage. this is a good indication of how deep the newly - won stability consensus in europe already runs. never before has there been so much price stability in europe as during the last decade. however, price stability is not unique to europe. disinflation occurred on a global scale, as price stability has been recognised as the superior concept of monetary policy. no major economy or economic bloc is willing to go back to inflationary habits. in this respect, the prospects for the world economy are highly favourable. the european stability consensus aims at underpinning price stability with an equally stability - oriented fiscal policy. eu governments therefore agreed on the european stability and growth pact. the idea of the pact is to not only to promote stability by preventing the emergence of conflicts between monetary policy and fiscal policies. sound public finances as envisioned by the pact contribute to sustainable growth, for they foster confidence. the pact provides a credible framework designed to automatically stabilise the economy over the business cycle. the budget should be balanced over the course of the cycle, allowing for deficits if necessary, but also calling for surpluses if growth is high. the overall debt level of the public sector must be sustainable. we regard the stability and growth pact framework as a major improvement compared with discretionary stimulus packages that in the past have all - too - often proved to be ill - timed and debt - propelling. the much - chided euro - area social security systems are the main tools of automatic stabilisation. calls to revise the pact to counter its alleged procyclicality lead astray. counter to conventional wisdom, the pact is flexible. it even allows for large macroeconomic stimulus. the only problem with the pact is that some governments wish to apply it asymmetrically : they are willing to run deficits in a weak growth environment, but wish to dodge consolidation in times of budgetary abundance. this deficit bias is the very reason for the 3 % - of - gdp deficit limit. the ongoing debate is the best evidence of how important the 3 % ceiling deficit is. i am well aware that in the field of fiscal policy, the us and the euro area have recently started