Important factors behind this development are the larger home-currency investor base and the better issuing conditions for international borrowers provided by the unified European money market, which is now more liquid and efficient than the markets in the individual countries before the introduction of the euro. Needless to say, European equity markets have also been affected by the disappearance of currency risk within the euro area. There appears to be a gradual shift from the domestic focus in the euro area countries to a euro area-wide, sector-related, view. Integration is likely to attract a broader range of potential investors and benefit the development of private equity and financing opportunities for new firms. In addition to these economic advantages, we must naturally also include what I consider to be the decisive political arguments in favour of Sweden participating fully in the political and economic cooperation with a view to attaining a position of influence in a strong and prosperous Europe. The fact that the Swedish krona has not been more negatively affected by the result of the referendum, despite the foregone advantages, could in turn be due to long-term factors that are independent of EMU. The political uncertainty ahead of the referendum should indeed have contributed to the somewhat weaker krona during the summer. However, the krona has been considered undervalued for a long time.
What have companies been using those cash piles for? Well, either they have been returning that cash in bucket-fulls to shareholders or using it to support their share prices through share buy-backs. It was reported in yesterday’s Financial Times that during the first three months of this year alone, the S&P 500 companies in the US spent a record $ billion to repurchase shares and pay cash dividends. While this may help to keep share prices high, they do not create new sources of growth. Meanwhile, capital spending by the S&P 500 companies has grown by an average of just 3.6 percent per year over the last five years. Ultimately, the quantity and quality of investment will determine the quality of growth now and well into the future. The second issue facing these economies is that despite the drop in unemployment, productivity growth has remained weak. The way we understand the recovery process, when demand picks up, companies will first try to meet it using its existing workers. Productivity increases. However, as demand continues to grow, the increase in productivity of existing workers will be insufficient and companies have to hire new workers to increase production. So employment increases. Therefore, an increase in productivity is accompanied by an increase in employment. We have not witnessed that phenomenon this time.