e. higher purchasing power ( slide 3 ). against this background, danmarks nationalbank has recommended fiscal policy that is not expansionary. after all, we want to maintain our favourable economy. one of the main reasons why the danish economy has been relatively sound in recent years is that we have created favourable framework conditions for the economy – even better conditions than many of our european partners offer. let me highlight a few important areas. traditionally, denmark has adhered to liberal industrial policies and no political measures have been taken to artificially keep struggling sectors and individual business enterprises alive. restructuring has been permitted to take its course, which means that resources have been moved from areas with little added value to industries with high added value, to the benefit of the overall economy. this process has been underpinned by a flexible labour market which supports such restructuring instead of impeding it. the danish labour - market model, referred to as " flexicurity ", is well - known even outside denmark's borders. flexicurity combines liberal access to hiring and firing employees with a social safety net and active labour - market policies. the dynamics of the danish labour market are e. g. reflected in a very large number of job shifts – approximately 600, 000 a year. consequently the average employment in the same job is just 4. 8 years, which is very low by international standards. in the last 10 years, fiscal policy in denmark has been based on a " medium - term orientation ", whereby not only current, but also future expenditure is taken into account. this is a sound principle. government finances are very sensitive to economic trends, oil prices and fluctuations in interest rates and securities prices in the financial markets. for this reason, among others, it is not appropriate to plan fiscal policy on the basis of the government budget balance in any single year. the large surpluses seen these years are of a temporary nature and will decline in the future, partly on account of population ageing. the surplus does not mean that there is scope for unfunded tax reductions or lasting improvements of publicsector services. the final framework condition for the economy that i would like to emphasise is the fixedexchange - rate policy. this policy has been a tremendous success, and i doubt if anyone would question it today. maintaining a fixed exchange rate against the d - mark, and since 1999 the euro, has anchored inflation expectations at a level close to 2 per cent p. a., and in recent

groups should be targeted and designed so as not to increase overall activity in the economy. this otherwise would further feed inflationary risks. measures should ideally also not be price - distorting to ensure that the price mechanism continues to work to reduce energy demand. in denmark, measures taken so far have mostly been in line with these recommendations. i see this as a testament to a sound economic policy setup. in fact, since i returned to denmark a few years ago after spending more than twenty years abroad, i have observed and been impressed by – and proud of – the extent to which sound economic advice plays a role in framing the policy debate in denmark. this tradition goes back perhaps 60 years to when the danish economic council was established. but the fixed exchange rate regime and its requirements of sound fiscal policy and sustainability arguably also play a role. this is a valuable feature of our regime. looking ahead the fixed exchange rate regime has advantages and drawbacks. i believe that the balance of these is such that the regime will continue to serve us well. most importantly, the fixed exchange rate policy provides a simple, credible and transparent nominal anchor for monetary policy, resting on the commitment and credibility built over 40 years of experience. it provides an important pillar in our stability - oriented framework for macroeconomic policy. it entails a clear separation of responsibilities between the monetary and the fiscal authorities. as i have already pointed out, the broad political support is an important part of the success of the regime, but also a feature that further reinforces the stability - oriented setup in its own right. * * * but there are also trade - offs * * * the choice of any currency regime, including our peg, also involves trade - offs. for one, the peg reduces destabilising currency swings against page 5 of 7 the euro. but it comes with the trade - off that it also eliminates currency movements that would have been warranted by macroeconomic fundamentals. it also removes the policy rate from the toolbox for targeting domestic financial conditions. this cost should not be overstated. in a small open economy closely integrated with global capital markets, financial conditions will always to some extent be driven by global factors. 2 but a clear trade - off we have experienced is episodes where pressure on the krone required a change of the policy rate in the opposite direction to what would have been desirable from the point of view of domestic economic conditions. for example, we increased the policy rate in 2008 going into the global financial