full - blown debt crisis as a result of a sustained lax fiscal policy. acknowledging these practical difficulties, the recent re - haul of the sgp can serve as a starting point when deciding upon an appropriate framework that can hopefully minimise the problems touched upon here. developing a fiscal framework the sgp could be characterized as consisting of three parts : governance, a preventive arm and a corrective arm. 5 the recent changes to the sgp, made in 2005, aim at strengthening all three aspects. better governance is to be achieved through stronger national fiscal incentives, more prudent forecasting and more reliable statistics. the fiscal incentives can take the form of budgetary rules, or as in the swedish case a budget law. surveillance is a measure that would bring increased attention to the development of public finances. such monitoring on behalf of a national institution would mean that transparency increased significantly, an important prerequisite for accountability. at least in the eu, there has been a need for more prudent forecasting. serving as merely one example of possible problems, a study by the ecb shows that the closer a country comes to an excessive deficit, the more likely it is that the forecast the government presents officially will later turn out to be wrong. as for more reliable statistics, common methodological standards and independency of statistical compilers are two ways of addressing such problems. an integral part of the preventive arm is the yearly national stabilisation program. a product of the ministry of finance, it includes a thorough description of the economy, and the measures to be undertaken by policy makers in order to comply with the rules of the sgp. the corrective arm consists of the excessive deficit procedure ( edp ). if a country runs a fiscal deficit deemed to be too large, the limit being at 3 per cent of gdp, corrective action has to be taken. the recent change in the sgp concerns a relaxation of the rules. the definition of a severe recession, being a valid reason for exemption from the edp, has now been relaxed. also, a longer time frame for taking effective action is allowed, now three years instead of the earlier two, from when the deficit occurred. the sgp has received its fair share of criticism, both before and after the changes made in 2005. although it undoubtedly has it shortcomings, it is important to view it both in a longer perspective and from a more theoretical point of view. too many euro area members have had

rapidly since the end of 2009. our assessment is that this improvement will now slow down. unemployment will continue to fall, but at a slower rate. our assessment is that unemployment will reach approximately 6. 5 per cent at the end of the forecast period ( see figure 19 ). a lasting bis central bankers ’ speeches reduction in the level of unemployment also demands that wage formation is effective so that costs in the business sector do not increase too rapidly. … and inflation can approach the target a new round of collective bargaining has now begun and the wage demands presented so far are higher than those presented in 2010. the riksbank ’ s assessment is that wages will rise by almost 3. 5 per cent per year in the years ahead. this is compatible with the inflation target. the assumption behind our forecast is that wage formation will work as well as it has over the last 15 years. responsibility for this lies with the social partners. the krona is an important factor for inflation in sweden as it determines how prices abroad are “ translated ” into import prices in sweden. historically the krona has weakened in periods of financial unease as investors often move their money from small currencies like the krona to the dollar and the euro. however, the krona has weakened only moderately this time, despite the financial unease ( see figure 20 ). we expect the krona to gradually strengthen as the financial unease subsides. the combination of falling commodity prices internationally and a stronger krona means that inflationary pressures from abroad will be rather low in the period ahead. cpi inflation still reflects the effects of the previous repo - rate increases on housing costs. various measures of underlying inflation show that inflationary pressures are moderate ( see figure 21 ). as economic activity recovers, underlying inflation will gradually rise towards 2 per cent in the years ahead. continued low repo rate will facilitate stable development our forecast for the repo rate is that it will remain unchanged until sometime next year and that monetary policy will continue to be expansionary — the repo rate is low in an historical perspective ( see figure 22 ). this will contribute to a gradual normalisation of inflation. apart from stabilising inflation, monetary policy also aims to stabilise the real economy. stabilising the real economy means, in more concrete terms, stabilising resource utilisation, that is the deviation of production and employment from long - term levels. resource utilisation can be measured in many ways, but our overall assessment