sector negotiations can take into account that the higher pay increases are, the fewer people that can be paid over government budgets. the interaction here became clear when public sector employment fell after the expensive wage settlement in 2002. in the years following 1997, with strong growth in public expenditure, the fiscal rule pointed to a continued increase in the use of petroleum revenues. we had to expect that this increase would lead to a deterioration in the competitive position of norwegian manufacturing, either through higher wages or through an appreciation of the krone exchange rate, and with norway ’ s relatively higher wage growth, competitiveness has been weakened by approximately 15 per cent since the mid - 1990s. the krone exchange rate has been influenced by high oil and gas prices and prices for other norwegian export goods. monetary policy has also influenced the path for norway ’ s relative costs, but the nominal value of the krone is about the same as ten years ago. strong growth in public expenditure and expectations of moderately higher growth in the use of petroleum revenues now seem to have been factored into the cost level. even at the beginning of the oil age in norway in the early 1970s, the relationship between the use of petroleum revenues and changes in industry structure was raised as an issue. manufacturing industry was scaled back in waves in the course of this period. the last wave occurred around the turn of the millennium, but a substantial decline also occurred in the periods 1977 to 1984 and 1987 to 1992. prior to these periods, the manufacturing sector ’ s competitiveness deteriorated. today, about 55, 000 fewer persons are employed in manufacturing than was the case in 1998. the share of our imports that can be covered by current petroleum revenues and some of the petroleum fund will gradually diminish. competitiveness must therefore be improved. competitiveness may have to return to a level we have not experienced since petroleum production began. rough estimates indicate that the real exchange rate that safeguards the balance of trade when norway ’ s oil wealth no longer has the same weight in the economy will be more in line with the real exchange rate we had in the 1960s. thank you for your attention. 7 / 7

should reflect credit risks of borrower financial institutions, lower to 0. 001 percent under the quantitative easing. in addition, the commitment to continue zero interest rates substantially flattened the yield curve. the strong effects of the quantitative easing policy on financial markets are very clear if we compare them with the u. s. situation in the 1930s. during the 1930s, although the u. s. treasury bill rate declined to approximately zero percent, the federal funds rate, the rate at which financial institutions lend and borrow short - term funds, declined only to 0. 25 percent. moreover, the yields on government bonds have been much lower in japan from the mid - 1990s onward than they were in the united states of the 1930s. thus, we can infer that the quantitative easing policy was one of the most decisive policy challenges for central banks from a historical perspective. in retrospect, japan's economy finally started recovering in january 2002 after the strenuous efforts by firms and banks to resolve their problems that i have mentioned. as an aside, it was on march 20, 2003 that i assumed the office of governor. at that time, the fact that japan's economy had already started recovering was beyond my widest dreams. in my inaugural address, i mentioned that japan's economy was still on shaky ground. subsequently, the bank stepped up the quantitative easing further by increasing the current account balances at the bank far above the required reserves, as well as abiding by the cpi commitment. also, in october 2003, the bank provided a more detailed description of the commitment to maintain the quantitative easing policy from the perspective of enhancing the transparency of monetary policy. during this, we always kept in mind that we should carefully nurture the budding economic recovery. the quantitative easing policy showed visible effects on two fronts. first, the policy, particularly through the ample liquidity provision, stabilized the financial system, at a time when there were strong concerns over its stability. the ample liquidity the bank supplied met the surges in financial institutions'liquidity demand, and thus successfully avoided a repetition of the large - scale credit crunch that was observed in 1997 and 1998. second, the quantitative easing policy created and maintained a very accommodative environment that supported the recovery of japanese firms, through the commitment to continue zero interest rates. in particular, bank lending rates and interest rates on corporate bonds continued to decline as a result of the flattening of the yield curve, as well as the gradual