the interest rate, the country ’ s economy can grow out of its problems and sovereign debt will remain stable even with some degree of fiscal deficit. the formula also provides an answer to the question of why sovereign debt rose so rapidly in many countries. the term indicated by the circle is known as the snowball effect and depends on the difference between the interest rate level and gdp growth. low growth or a fall in gdp results in a rising debt burden. when debt approaches an unsustainable level, investors will demand higher compensation for new loans and interest rates on loans will rise, hence the snowball effect. ( see chart : fiscal deficit and public debt. ) large deficits have a direct impact on sovereign debt. from 2007 to 2010, fiscal deficits in euro area countries rose from 0. 6 per cent of gdp to 6. 6 per cent. in the same period, public debt rose from 66 per cent of gdp to 85 per cent, and there are prospects that debt will approach 100 per cent of gdp in the next few years. fiscal deficits in the uk and the us will reach 11 – 12 per cent this year and public debt is rising rapidly to high levels. in order to rein in this development, fiscal tightening must be implemented and government budgets must be brought into surplus. this can be particularly costly in downturns. several european countries have recently announced tax increases and cuts in expenditure. this typically involves raising the retirement age, broad - based wage reductions and lower welfare spending. these sharp measures may well boost growth capacity in these countries in the long term, but in the short run they will result in lower demand for goods and services and probably lower activity. since several countries are tightening fiscal policy at the same time, export markets may also shrink. however, reduced fiscal deficits will hopefully restore confidence in economic policy so that growth in household and corporate consumption and investment resumes. ( see chart : sweden and finland in the 1990s. ) there are examples of heavily indebted countries that have stopped the snowballing process before it led to default. the banking crisis in the early 1990s left sweden with a substantial fiscal deficit. lower tax revenues, increased social security expenditure and rescue measures for banks brought the deficit close to 11 per cent of gdp in 1993. sweden ’ s public debt rose to 80 per cent of gdp. fiscal consolidation continued for several years and resulted in stabilisation of government debt and provided room for its eventual reduction. the see michael hoel and jan

prices have continued to rise. debt growth remains high. the economic upturn has continued this year. high petroleum investment, the international upturn and higher commodity prices have boosted output and earnings in the manufacturing sector. statistics norway ’ s business tendency survey indicates continued favourable prospects for norwegian manufacturing. activity is expected to increase in service industries and the construction sector in the near term. capacity utilisation in the norwegian economy now appears to be close to a normal level. in manufacturing, capacity utilisation is close to its historical average. according to norges bank ’ s regional network, about 40 per cent of companies will have some or considerable difficulty in increasing production. even though growth in the norwegian economy has been high for a long period, substantial pressures have not yet emerged in the labour market. the rise in the number of employed in the first half of the year was fairly modest in relation to output growth. this may be due to lagged effects of the sharp fall in sickness absence through 2004. in many companies, the large increase in available person - hours was probably not fully utilised immediately. a considerable share of output growth may be the result of improved utilisation of company workforces. according to the quarterly national accounts, employment rose by 0. 5 per cent from the first half of last year to the same period this year. measured by the 1 / 7 labour force survey ( lfs ), the number of employed rose by 12 000 from may to june and by a further 2 000 from june to july. the use of foreign labour has increased in the year that has passed since the enlargement of the eu. the scope is relatively moderate, but appears nonetheless to have reduced bottleneck tendencies in some industries where demand has increased sharply. traditionally, many workers from our neighbouring countries have contributed when the labour market in this country has been tight. in 2001, close to 30 000 persons resident in sweden were employed in norway for all or part of the year. swedes who have registered as residents of norway come in addition. an increased supply of labour from new eu member states to norwegian enterprises may lead to a higher - than - normal increase in potential output for a period. many of the foreign workers work for a shorter period in norway without being employed in a norwegian enterprise. examples include foreign contractors and self - employed in the construction industry who carry out various building projects in norway, as well as others who carry out other types of projects. aker kværner, for example,