no need to increase further what is already undeniably a tight monetary stance. on the other hand, if nothing of particular note is reported, the analysis at hand when the current interest rate decision was made will determine the decision on december 21 and a policy rate hike could be in the offing. as far as can be seen, there is reasonable consensus on the central bank ’ s decision among the main observers in iceland and abroad. people may well question and in fact some already have the bank ’ s grounds for its concerns and its strongly worded message, bearing in mind the short - term and long - term downturn in inflation, slower credit growth, lower oil prices and substantially less wage drift than was feared. the answers are obvious from the bank ’ s core writings on these issues. they show that a tight monetary stance must be maintained for longer than would seem to be generally expected. inflation has certainly slowed down but it is still running high and will continue to do so, and for quite a while will remain incompatible with the target and main tasks assigned to the bank. almost everywhere we look, strong pressures persist in the economy. the labour market is greatly overstretched and labour demand is enormous. this has been met with heavy imports of labour and it is questionable whether such a swift influx is necessarily beneficial or healthy for iceland in the long run, despite making the battle with inflation easier for the moment. in the banking sector, credit growth remains robust even though it is now slower than at the peak, and is still unsustainable in the long term. now that the banks have fortunately managed to secure medium - term funding, the risk is that they will become more complacent and ease their restraint. such signs seem to be emerging. the housing market appears to be picking up again and household and business sentiment is still very upbeat. finally, iceland ’ s current account deficit relative to gdp is presently the widest in the world. and while it is forecast to shrink next year, the deficit will remain large and eventually have to be settled. funding the accumulated deficit will leave the economy highly dependent on investors and creditors in the markets, with precious little scope for manoeuvre. thus the icelandic economy is exposed to potential shocks which may prove tough to tackle. the treasury is in a strong position and has achieved much in recent years. but according to a familiar pattern, the treasury may be less willing than usual to proceed cautiously at this stage of the electoral term, and

benoit cœure : the perils of isolation speech by mr benoit cœure, member of the executive board of the european central bank, at the council on foreign relations, new york city, 19 april 2017. * * * i would like to thank j. beirne, m. ca ’ zorzi and m. grill for their contributions to this speech. i remain solely responsible for the opinions contained herein. we are currently seeing widespread concerns in many parts of the world regarding free trade and globalised finance. these concerns mainly stem from perceptions of inequality of opportunities and a lack of inclusiveness in sharing the benefits of international openness, resulting in growing disparities in income. often, these are not only perceptions. in this country, for example, net income inequality has been on an upward trend since the late 1970s. 1 although globalisation might have amplified growing income inequality, empirical analysis tends to suggest that technological progress, and the associated rise in demand for skilled labour over low - skilled, is likely to explain most of the rise in income inequality in advanced economies since the early 1980s. 2 and yet, fears of globalisation appear to dominate public discussion and are likely to have been a key factor in fomenting political opposition to the free movement of goods, services, capital, and people. much has been said about the perils of rising protectionism. today, i would like to focus on a related but distinct risk, namely all the talk of a weakening of the international financial regulatory agreements that were reinforced in the wake of the financial crisis. such a push - back would be all the more difficult to understand as there is compelling empirical evidence that excessive risk taking by the financial sector has contributed to rising inequality. 3 dismantling regulatory standards would therefore not only make financial markets less safe, it would also be unfair to those who feel left behind. indeed, in recent years, through the actions of the financial stability board ( fsb ) and standardsetting committees such as the basel committee on banking supervision, the international community has made important progress in rewriting the international financial rule book with a view to curbing financial exuberance, protecting taxpayers from costly bailouts, and improving cross - border cooperation. 4 these reforms have undoubtedly made global financial markets more resilient. and they have also supported the recovery of loan growth to households and firms despite claims that regulation may hurt economic growth and dent bank profitability. indeed, researchers at the bank for international settlements have