government would prevent the central bank from coming under political pressure. it was not until 1896 that the storting decided that the central bank should be moved to kristiania ( now oslo ). the strongest objection to relocating the central bank from trondheim to kristiania was expressed by director karl gether bomhoff, who was in fact also a friend of henrik ibsen from his dresden period. 11 bomhoff was a member of the bank ’ s board for 35 years, from 1885 to 1920. in 1893, he became the first permanently employed chairman of the board and the first director for the entire central bank. he emphasised that norges bank had to be independent and free of pressure from the political authorities and civil servants he stated at the time : 12 “ as i have said before, i believe that the bank can be managed just as well from trondheim as from kristiania, and i believe, better, because in the capital city it will be subject to pressure that it is impossible to know how long the board will be able to resist, since there are those in kristiania, and perhaps also in the government, that may seek to change the bank ’ s objectives. norges bank should be maintained as an independent institution under the control of the storting. ” see kydland and prescott ( 1977 ). see figueiredo ( 2007 ). see borlaug ( 1999 ), pp 34 - 35. geographical distance to markets and government has no significance today, but it may well be said that bomhoff expressed thoughts that were articulated in more modern terms by kydland and prescott 70 - 80 years later. history has also taught us that fiscal policy has considerable bearing on the role monetary policy can play. if the government's debt is too high, the political authorities have an incentive to increase inflation in order to reduce the real value of the debt. it is then difficult to anchor inflation expectations. no monetary policy can secure the nominal anchor if government spending spins out of control. monetary policy and fiscal policy must therefore have a common platform. the interaction between the political authorities and the central bank can be effective if the authorities take the role of “ leader ”, and the central bank the role of “ follower ”. inflation targeting provides a clear indication as to how the central bank should respond in different situations. the political authorities are the “ leader ” in this interaction. they can internalise the central bank ’ s – the “ follower ’

##flagging in explaining our actions and, if possible, winning support, because the ultimate foundation of the independence of a central bank is not a law, nor even a treaty, but the acceptance by the people concerned of the policy being implemented. with this in mind, i think it was among others wise to keep the bank ’ s council of regency in existence, even if it has finally lost all monetary power. it offers an irreplaceable opportunity for dialogue between the directors of the central bank and the experts representing the main spheres of belgian society. the bank ’ s board of directors have duties towards the population ; they also have duties towards the staff of the bank. the standards expected of the bank and its staff are traditionally high and have been accentuated by the profound changes which i have already mentioned. we need to adapt our organisation without being over - hasty but also without dragging our feet, because anticipating probable developments is the best way of controlling them. our staff, thanks to whom the switch to monetary union, in particular, was successfully accomplished, work hard and efficiently, and we still expect a great deal of them in meeting the challenges ahead and fulfilling our ambitions. but we must also be able to define for our staff - and this must be done in collaboration with our partners in the european central bank and the eurosystem - clear prospects for the foreseeable future, without which, we know, enthusiasm could give way to bitterness. my colleagues on the board of directors and i myself have held a strategic reflection aimed at increasing the quality of the bank ’ s response to today ’ s challenges, and especially the challenges of tomorrow. that reflection will shortly be extended, by degrees, to include all our staff. i have no doubt that they will enrich the discussion and that together we shall be able to realise the objective of a bank that is ever better equipped to meet the expectations of belgian society, and to maintain its position in the concert of europe and in international cooperation. we shall probably need to specialise more, perhaps giving up certain activities ; we shall undoubtedly need to adjust the scale of others, but we shall also have to develop our action in fields whose importance is increasing. i will give two examples. the national bank of belgium like all central banks, has since long shown an interest in the security and stability of the financial system. but due to its integration in the european system of central banks, the bank has been given an explicit responsibility in this field and the belgian