it is natural that a debate on monetary policy should arise when inflation deviates considerably from target. on this occasion the debate has been fuelled further by the rise in unemployment in 2003 - 2004. when i was here in the autumn i devoted a lot of attention to the issue of what the riksbank could do about the unemployment situation. the discussion has continued since then. it is important to remember that the riksbank ’ s objective is price stability. we try to fulfil this objective by setting interest rates at a level that enables the general level of demand to grow in line with what the economy is able to sustain in the long run without giving rise to inflation, and that ensures that economic agents have confidence in the bank to meet the inflation target. so we only have an indirect influence on the general level of demand and employment. and the poorer than expected employment conditions in the past two years have not been due to developments in demand. on the contrary, demand has proved surprisingly strong. nonetheless it can of course be maintained that employment could have been somewhat higher if the riksbank had kept interest rates lower, something that would have been possible given what we now know about inflation. it is difficult to object to this assertion, which of course is why the riksbank ’ s critics keep coming back to it. but an assessment of what we could or could not have done must be based on what we knew when the decisions were made, not on what we know now. one way to try to approach this issue is to compare our assessments and actions with other players ’ forecasts and opinions on policy at the time in question. the inflation report that we published today shows that the economic and inflation outlook on which the riksbank based its monetary policy in 2002 - 2003 was in no way significantly different from that held by other leading forecasters of the swedish economy during this period. ( figure 3 ). if anything it seems that the riksbank was one of the most successful forecasters, or perhaps rather one of the least unsuccessful, although it also has to be remembered that our forecasts, unlike others ’, had been based on the assumption of an unchanged repo rate. part of the recent monetary policy debate has seen our forecasts compared with those of the national institute of economic research ( nier ). it turns out, however, that the nier ’ s view of the appropriate repo rate path has not differed more than marginally from the riksbank ’

gdp in 2009 and will continue to grow rapidly as long as the large deficit remains. ( slide : gross public debt in the oecd countries ). the problem is largely the same for all the established industrial countries. however, there are significant variations. for instance, the public - sector deficit has increased more in the usa during the crisis than in the euro area. ( slide : general government net lending in the united states and the euro area ). there are also major differences between the countries in the euro area. in some of the euro countries the deterioration in public finances has been dramatic. i will come back to this later. these figures are taken from the oecd ’ s latest economic outlook, november 2009. there are several reasons for the deterioration in public finances there are a number of causes behind the substantial deficits in public finances. firstly, many countries were in a weak initial position even before the crisis began, as their public finances were already in deficit. many countries failed to save money for a rainy day when times were good. this is illustrated by the fact that in the decade prior to the crisis average general government net lending was – 2 per cent of gdp in the oecd area, the usa and the euro area. in the case of the euro area this is remarkable given that the so - called growth and stability pact stipulates that the aim should be to achieve a balance or a surplus in public finances in the medium term. ( slide : average general government net lending ). secondly, a downturn automatically leads to a weakening of public finances. tax revenues fall and cyclical expenditure, for example on labour - market policy, increases. the oecd estimates that this effect has accounted for just under half of the total deterioration in public finances since 2007. thirdly, most countries have implemented extensive fiscal policy stimulus measures. the oecd estimates that these measures have accounted for just over half of the reduction in general government net lending in the oecd area. in the united states, where stimulus packages have been introduced on an unprecedented scale, the oecd estimates that these active stimulus measures have accounted for as much as three - quarters of the deterioration in public - sector finances. in the euro area it is instead the automatic effects on tax revenues and cyclical expenditures that have predominated. consequences of the deterioration extensive historical studies of financial crises show that they are often followed by a severe weakening of public finances and prolonged periods of subdued gdp growth. 2