The exit from exceptional monetary measures should be fully in the hands of the central bank and guided by its mandate of price stability. Fiscal authorities must also be credible and give guidance on their future actions, by committing to tightening the stance when the economy has recovered. They should follow a stronger countercyclical fiscal policy in good times, to create the space that is necessary in bad times. What Blanchard and Summers5 call “semiautomatic stabilizers” – stabilising fiscal policies that operate according to predefined triggers – could be an avenue worth exploring. Let me add as a conclusion that, against this backdrop, the Next Generation EU package constitutes a new and innovative element of the European fiscal framework, which contributes to a sounder policy-mix. Beyond the most recent political and institutional discussions, which belong to elected leaders, a quick implementation of this European Recovery Fund is an economic must. This innovation, while still a one-off, could also imply lessons for the Economic and Monetary Union, which from the start has lacked a permanent fiscal capacity at supranational level for macroeconomic stabilisation in deep crises. Either we succeed in designing – at end – credible and coordinated countercyclical rules for national fiscal policies, or we should think about some 4/5  BIS central bankers' speeches  central fiscal capacity, reversible in its use, controllable in its size, but effective through the cycle. This should be one area of discussion in the “European momentum” which the crisis has initiated. Thank you for your attention.
Four times a year the Riksbank presents a more comprehensive account; at present we are working on this year’s first Inflation Report. Let me remind you that for those who are interested, these reports are easily downloaded from our website: www.riksbank.se. Perhaps I should add that in addition to the text, the site provides the equally relevant statistics behind the charts. Two routes for a central bank Any central bank with an explicit target is faced with a choice that in its most extreme form looks something like this: either aim to keep inflation continuously on target or admit that there will be deviations that may last for quite some time. If inflation is to be kept close to the target all the time, there will be a constant need for sizeable repo rate adjustments, with the attendant marked fluctuations in market interest rates, output and employment. If temporary deviations from the central bank’s target are tolerated, on the other hand, monetary policy can be implemented more smoothly. A gradual adjustment of output and employment ultimately brings inflation back into line with the target. Both these routes have their drawbacks. Negative effects on employment and output from major changes in the repo rate are liable to erode public confidence in the central bank and the monetary policy regime. At the same time, undue acceptance of large deviations from the inflation target may weaken the target’s credibility and lead both to rising inflation expectations and to high costs for ultimately bringing inflation back on target.