The question is how well the last 20–30 years of history reflect the risks we may face in the future. History warns us of low resilience in the financial sector Even before the last crisis, we in Sweden had already seen warnings of insufficient capital levels. The credit deregulation of the mid-1980s coincided with the highest leverage ratios in Swedish banking history. As some of us remember, lending increased almost explosively during the second half of the 1980s. The low solvency of the 1980s created strong financial leverage that facilitated the excessively rapid growth of credit. As most of us remember, this ended in disaster. The low level of solvency also made the banks far too vulnerable when growth slowed down. The crash at the start of the 1990s led to a banking crisis with three years of negative growth and steeply rising unemployment and public debt. As we all know, leverage can work both ways. Resilience is needed in uncertain times Only a few years ago, we came close to seeing history repeat itself. In late 2008 and early 2009, Sweden stood on the brink of a new banking crisis. The low level of confidence on the financial market and great uncertainty over developments in the Baltic countries made it difficult or impossible for Swedish banks to obtain funding on the market. The measures adopted by the Riksbank, the Ministry of Finance, Finansinspektionen and the Swedish National Debt Office were decisive for saving the situation.
Their experience is relevant, nonetheless, for the Euro area Member States as well, as the common market and free movement of capital is a two-ways street. Financial and business cycles in euro-area and non-euro area are not perfectly aligned. Growth is now much stronger in Eastern Europe, and the output gap has turned positive earlier than in the euro-area. Inflation has also reemerged in non-euro area. Some of it is cyclical, as it comes from international commodity prices, other supply side factors, but also from a strong domestic demand. Yet, some of it is structural, as any catching-up process is inflationary in nature. Higher wage growth pressure is normal, up to a point, in view of large wage differentials, migration flows, and labor market tightening. Despite the wage growth, CEE countries are becoming increasingly competitive, as productivity also grows. This is why the current account position of non-euro member states is better now than before the crisis. The monetary policy normalization cycle runs also at a different pace. Even within CEE countries, while the monetary stance remains largely accommodative, the situation is quite heterogeneous regarding inflationary expectations, policy objectives, and policy tools used. As regards Romania, we started the tightening of monetary policy by hiking the rate twice this year, after further narrowing the corridor around the policy rate last year, but a gradual approach is warranted by the need to avoid sharp currency appreciation in the regional context. In our case, the policy normalization has been supported by two favorable developments in the banking sector.