On 2 May, agreement was reached between Greece, the IMF and the other euro area countries on a three-year loan package with a maximum limit of EUR 110 billion. The agreement included a comprehensive IMF adjustment program. Greece has borrowed approximately EUR 30 billion from the IMF and the euro area countries since May. Other European countries with weak public finances were also being scrutinised and there was a risk of contagion to the banking system in Europe, which was behind many of the loans. On 10 May the EU and the European Central Bank announced extensive support measures for EU countries, including the European Financial Stability Facility, which can provide loans to countries in difficulty up to a total limit of EUR 500 billion, with additional loans of up to EUR 250 billion made available by the IMF through its program facilities. Countries may draw on these loan facilities provided that taxes are increased and expenditure cut so as to enable the country to gradually become self-supporting. At the same time, the European Central Bank began to buy government bonds, which had become difficult to trade on the market, enabling markets and monetary policy to function more effectively. Economic history shows that periods of surging corporate and household debt and sharply rising property prices often precede banking crises. The fates of banks and states are inextricably linked. Banking crises usually lead to fiscal crises. Similarly, weak government finances will undermine banks’ financial position. 1 Crises are costly.
The financial markets are becoming increasingly integrated, banks are crossing more and more boundaries and so on. All this is affecting the Riksbank to a high degree. The same is true of the rapid technical innovations, with increasingly complex payment systems. Add to this the possibility of EMU and you can see the future does not lack challenges. Apropos of what I have been talking about today, a while ago one of my American colleagues, Bill McDonough, said something to this effect: we should be pleased if we are better today than we were yesterday at the same time as we are not yet as capable as we will be tomorrow. I think that's about right. 4  BIS Review 51/2001