stefan ingves : the crisis in the baltic – the riksbank ’ s measures, assessments and lessons learned speech by mr stefan ingves, governor of the sveriges riskbank, to the riksdag committee on finance, stockholm, 2 february 2010. * * * the crisis in the baltic – the riksbank ’ s measures, assessments and lessons learned it is not possible to provide a comprehensive reply to all of the questions discussed in connection with the crisis in the baltic in the space of 15 minutes. i shall therefore give a brief summary of the assessments made by the riksbank during the course of the crisis and something about the measures we have taken. in conclusion, i shall say a few words about the lessons that can be learned. before i discuss the role of the riksbank, i would like to point out that the responsibility for developments in the baltic countries primarily lies with their own governments with regard to economic policy, and with the banks, which have a responsibility for understanding developments in the economy and taking sustainable, long - term action. people often seem to forget in the general debate that we are talking about three different countries here. financial market participants also tend to see the baltic countries as a unit, which makes it difficult to manage the crises in these countries. of course there are many similarities between the countries, for instance, their economic expansion and decline. however, there are also important differences. swedish banks ’ commitments in the baltic the swedish banks ’ total lending to the baltic countries currently amounts to around sek 400 billion. there are mainly two swedish banks that have had a large presence in this region ; seb and swedbank. these banks, their subsidiaries and branches dominate the markets in the baltic and comprise 80 per cent of the estonian market, 55 per cent of the lithuanian market and 60 per cent of the latvian market. around 16 per cent of swedbank ’ s total lending is to the baltic countries. the corresponding figure for seb is 13 per cent and the figure for nordea is 3 per cent. swedbank ’ s loan losses for the three first quarters of 2009 total sek 19 billion, and 60 per cent of this stems from the baltic countries. seb ’ s loan losses total sek 9 billion, with 75 per cent stemming from the baltic region. according to the riksbank ’ s own estimates, the three banks ’ total loan losses in the baltic region will be sek 27 billion for the whole year

already described. moreover, if it is true that weak demand has reduced potential growth through hysteresis effects in the labour market, it could also be true that an acceleration in demand will support potential through the same mechanism working ecb bank lending survey, april 2015. “ competitiveness and external imbalances within the euro area ”, gvar handbook structure and applications of a macro model of the global economy for policy analysis, 2013. bis central bankers ’ speeches symmetrically – for example, as the labour market tightens firms may start hiring discouraged workers and retraining them. over the longer - term, however, monetary policy cannot increase growth. the growth rate of the economy is ultimately driven by factors such as the efficiency with which resources are allocated, the strength of incentives to innovate and invest, the ease of doing business, and the quality of public institutions – in other words, by the supply - side. and making improvements in all of these areas comes down chiefly to structural policies. importantly, our monetary policy is creating a unique window of opportunity to enact such reforms. when demand is weak structural reforms can result in higher short - term adjustment costs, as for example people losing their jobs take longer to find new ones. financial frictions can also reduce the short - term confidence effects of reforms, as people cannot rely on consumption smoothing through credit to manage labour market risks. these effects can make introducing reforms harder. with our expansionary monetary policy, however, we are supporting strengthening demand and better access to credit, and thus limiting the potential downsides of reforms in the short run. for this reason, there is every reason for national authorities to push ahead with structural reforms today. there are many channels through which structural reforms can raise potential. for example, in some countries active labour market policies aimed at retraining vulnerable groups such as the low skilled, the long - term unemployed and the inactive can play a key role in getting people back to work – which is particularly important given the drag that ageing societies will create on labour supply. another example is product market reforms that enhance competition in protected sectors, which can drive productivity gains by encouraging new innovative firms to enter the market and existing ones to improve their internal efficiency – a finding recently confirmed by the imf. 8 making use of all these channels is necessary to lift growth potential. what is particularly important for the euro area today, however, is that we focus our efforts on reforms with the greatest short - term impact on demand