hermann remsperger : the bundesbank ’ s view of the economic outlook and economic policy challenges speech by professor hermann remsperger, member of the executive board of the deutsche bundesbank, at swedbank ’ s economic outlook conference, stockholm, 25 october 2004. * * * i was very glad to accept your invitation to attend swedbank ’ s economic outlook conference. to a german central banker comparing the economic developments in germany and sweden since the 1990s is interesting for a number of reasons. this also holds true for the question of how we in germany should tackle the current economic policy challenges. just an example : last wednesday i read an article in the financial times with the heading “ can sweden give germany fertile ideas to revive an ailing economy? ”. in the past, sweden was admired by many for its virtually “ perfect ” social welfare system. today, sweden is perceived as an example of successful reforms because it anticipated the need for economic restructuring at an early stage - namely in the early 1990s when the country suffered from a banking crisis and exchange rate problems. sweden reacted by making its labour markets more flexible and adapting its social welfare systems to the new environment. in germany, by contrast, structural reforms had a much lower priority on the agenda in the 1990s. unfortunately, german reunification was not seized as an opportunity to explore new approaches in economic policy. the preparations for european integration also tied up a lot of resources at the time. in the meantime, however, a lot has been done to reform the labour market and the social security system. i will talk more about that in just a moment. but first i would like to make a few comments on the current economic situation and the monetary policy of the ecb. 1. developments in the global economy in the first half of this year, the world economy grew faster than many experts had been predicting in the spring. this is reflected in upward forecast revisions. the imf ’ s september forecast is an example. it suggests that the increase in global output in 2004 could turn out to be 0. 3 percentage points higher and reach 5. 0 % on average. a rate of 4. 3 % is expected for 2005, which would be still pretty dynamic. since in many countries actual gdp growth is above the potential rate, a slight slowing of global economic momentum must not be viewed as completely negative. at the same time we have to take into account that the oil price has undergone further increases since september. in my view,

implement an independent monetary policy. both similarities and differences are important in order to understand the role of our institutions in the assessment and availability of actions taken to safeguard financial stability. despite the arsenal of these actions, central banks cannot carry out this mission alone. central banks are in possession of a full arsenal of measures and instruments, but their implementation, albeit timely and complete, cannot have full effect unless they are coordinated and supported by other agents ’ actions. it is thus essential that all economically - important agents, public authorities, the public at large and the media are fully aware of this matter. apart from legal definitions, this awareness requires receiving comprehensive, regular and timely information on the events that may jeopardize financial stability and identifying the necessary protective actions. the regular release of reports dedicated to financial stability is the key instrument that meets this obligation. let me now share with you our experience at the bank of albania. according to our concept, the bank of albania has full legal responsibility for safeguarding financial stability. the bank of albania is attributed the exclusive role in terms of licensing and supervising the banking activity, the right to organize and monitor the operation of the payment systems, the lender - of - last - resort function to assist banks facing difficulties, the liquidity management function in the interbank market, and the determinant role in foreign exchange policy. the bank of albania has the obligation to inform the public about the events that may jeopardize the financial stability. in early 2007, the supervisory council of the bank of albania considered a better coverage of developments in the financial system – that is, not only in the banking sector ’ s alone – as highly important. in addition, it required strengthening the analysis of interaction between macroeconomic developments and the financial system ’ s activity. our ultimate goal was setting up a more sustainable mechanism that would allow the conversion of these analyses into proposals for concrete actions, in order to reduce systemic risk not only through the bank of albania ’ s actions but also through measures taken by other public authorities that have a role in monitoring the developments in the financial market. from the institutional viewpoint, in september that year, the supervisory council of the bank of albania, approved the establishment of the financial stability department, by selecting the most outstanding human capacities in the area of monetary operations, banking supervision, research and statistics. the conclusions derived from the analysis of this department would be regularly discussed at a higher central bank level, thus providing a useful filtering and enriching mechanism prior to