In late summer the international financial crisis escalated and the krone depreciated. High wage growth cannot be attributed to flaws in wage and income determination. On the contrary, the flexible wage and income system can probably be cited as the main factor behind the high level of employment and low unemployment in Norway. In periods of strong labour market pressures, particularly in 1974–1976, 1986–1987 and last year, wage growth accelerates sharply. Such periods are normally followed by a slacker labour market and higher unemployment. The positive feature of income determination in Norway has been that wage growth returns to normal relatively quickly,  BIS Review 20/1999  10  which has allowed Norway to avoid the persistently high levels of unemployment experienced by most West European countries. Even though some increase in unemployment must be expected, we should be able to avoid a rise in unemployment to European levels or to the level prevailing in the period 1989–1992 if wage and cost inflation is rapidly reduced also during this business cycle. Fiscal policy failed in 1996, 1997 and 1998. Developments illustrate that budget discipline must be exercised down to the last billion. The economy overheated because fiscal policy was not sufficiently tight when the economy was faring well. This brought the krone under pressure and external conditions intensified this pressure, making it impossible to keep the krone on track. It is only this year that fiscal policy is again well adapted to the economic situation.
The government therefore controls banks that account for about 50% of bank lending in Norway. The stake in the two largest commercial banks is to be reduced to a third. State ownership of banks constitutes, in my opinion, a structural weakness in the Norwegian financial system. There is a risk that the ownership function is not exercised actively enough. A lack of control on the part of active owners may give the board and management excessive influence in these banks. In the long run this could lead to less efficient operations and lower profitability. Private owners with lower capital stakes may also wield a disproportionately high level of influence if the state as owner is too passive. The political parties widely disagree on the issue of government bank ownership. This may be a disadvantage when decisions on mergers and other structural measures are to be taken. When there is a profitable basis for growth, which requires increases in capital, the state-owned banks must pose the following question: is it possible to gain political support? They cannot merely ask: will investors find this profitable? It is important to reach political consensus on the question of state ownership. One example of a case where the political parties reached agreement on structure and ownership in the 1980s is the petroleum sector.