. in a letter of 27 june 2008, the ministry of finance has asked the financial supervisory authority of norway to assess the need for regulatory revisions to the norwegian banks ’ guarantee fund. conclusion the experience so far is that inflation targeting has provided a good basis for stabilising inflation and inflation expectations. interest rate setting and interest rate forecasts have also contributed to stabilising output and employment and prices in property markets. in some areas, regulations and frameworks can result in amplifications of fluctuations in asset prices and credit flows. for example, tax subsidisation of homeownership can be a source of recurrent instability in house prices and credit. the turbulence in financial markets has prompted many countries to consider measures to improve regulation and the functioning of markets. in norway, the authorities can also strengthen the work on preventing systemic risk. with our cross - border banks, broader nordic cooperation, particularly between finance ministries and supervisory authorities, would be appropriate. but there is also work to be done at home. norges bank is proposing, for example, revisions to the norwegian banks ’ guarantee fund with a view to reducing moral hazard. thank you for your attention.

and maintaining sustainable fiscal positions. in canada, we are fortunate that this task will be more manageable than elsewhere, and continued resolve is required. the current sovereign debt problems were exacerbated and brought to a head by the global financial crisis and recession. of course, a number of countries entered the crisis with weak fiscal positions, but their situations have deteriorated substantially. in part, this reflects the direct support many governments provided to keep troubled financial institutions afloat. although the final bill for this support is not yet known, it could be very large. another important element is the massive fiscal stimulus that governments in all major countries delivered to mitigate the recession. and, of course, reduced tax revenues, associated with the recession, have added substantially to the problem. both financial system support and fiscal stimulus were necessary, since the alternative would have been much worse. when private sector spending was no longer sufficient to support growth, governments had to step in to fill the gap. but the result was a shifting of the debt build - up from the private sector to the public sector. growing sovereign debt is a source of risk for two main reasons. first, high levels of public debt tend to constrain economic growth. 1 second, when concerns about sovereign debt become acute – even if they are limited to a few countries – they can have pervasive effects on the financial system. these effects stem from the fundamental importance of government liabilities in the financial system. government debt instruments are typically viewed as risk - free and highly liquid assets that are held by financial institutions and individual investors, and are used as a benchmark for pricing other financial assets. what happens, then, when these assets are perceived as risky – and when they become increasingly illiquid ( as we saw in early may, when european sovereign debt markets seized up )? see carmen m. rienhart and kenneth s. rogoff, “ growth in a time of debt, ” available at http : / / www. economics. harvard. edu / faculty / rogoff / files / growth _ in _ time _ debt. pdf : “... whereas the link between growth and debt seems relatively weak at ‘ normal ’ debt levels, median growth rates for countries with public debt over 90 percent of gdp are roughly one percent lower than otherwise ; average ( mean ) growth rates are several percent lower. surprisingly, the relationship between public debt and growth is remarkably similar across emerging markets and advanced economies ” ( page 2 )