The main thing to do to prevent new crises for stabilisation policy is to develop and possibly reinforce the framework for budget policy that has applied in recent years. Government debt can then be run  BIS Review 6/2002  5  down more quickly and reserves can be built up so that the automatic stabilisers can be left to do their work. An important issue in this context is the construction of the social security system. Changes will be needed and there may well be reasons for increasing the element of funding. It may be asked whether some institutional changes are also needed to facilitate a discretionary fiscal policy. This is certainly not a minor question but it has taken up too much of the discussion about economic policy. The possibility of implementing a discretionary fiscal policy in a meaningful way is limited. The discussion should therefore concentrate on what can be done to manage situations when more serious shocks are likely to occur. The problem here has been a lack of knowledge, plus the difficulties in mobilising sufficient support for a restrictive policy when the economy is overheating. There are presumably some things that can be done to improve our knowledge, though it is mostly a matter of trimming an existing structure. But that must be done in the light of the limited competence for empirical economic analysis in Sweden and the numerous challenges that lie ahead in other respects than stabilisation policy.
That means there is no room for the type of misguided economic policy that characterised the 1970s and ’80s, for example, when Sweden used repeated devaluations in an attempt to rectify the situation. Such failures must be avoided at any cost. Against this background it is not remarkable that the discussion about economic policy with EMU has focused on stabilisation policy. Even so, it is important to start from a broader perspective. The issues to do with stabilisation policy have featured prominently in the Swedish debate. This has to do with a strong Keynesian tradition and the ability of Lars Calmfors and his former colleagues to place the so-called insurance argument in the centre of the whole discussion about a monetary union. The latter naturally has to do with the fact that the very dramatic crisis which hit Sweden in the early 1990s was so closely connected with stabilisation policy. It is hardly surprising that in many other countries the discussion took a very different course before they adhered to the EMU. It is extremely important that our discussion about economic policy – with or without the euro – does not overlook or play down the supply side of the economy. Countries that create conditions for a smooth adjustment of labour markets and a favourable development of productivity will almost certainly do well as members of the monetary union. Measures to this end are naturally warranted in any event – they promote prosperity.