The FX part of the balance sheet therefore had a significant maturity mismatch. However, there was no safety net of the type we have in a national setting, in the form of liquidity provision and lender-oflast-resort (LOLR) to back it up. It was an accident waiting to happen, and happen it did, with a vengeance, at the peak of the international financial crisis in autumn 2008, when there was a wholesale run on the FX financing of internationally active banks. When the Icelandic authorities were dealing with the failing banks, they assumed, based on published CAD ratios and stress tests, that the banks were solvent. Now, however, we know that this was probably not truly the case, as there were hidden vulnerabilities in their capital positions. Be that as it may, with the solvency assumption in mind, the authorities tried to build defences against potential foreign currency liquidity problems at the banks by  BIS central bankers’ speeches  1  negotiating swap lines and tapping foreign capital markets – in both cases, with limited success. Given the lack of international co-operation, the Icelandic authorities were forced to consider radical solutions. Although they were not necessarily articulated in full at the time, these solutions entailed several goals: to preserve a functioning domestic payment system, ringfence the state in the case of bank failures, limit the socialisation of private sector losses, and create the conditions for rebuilding a domestic banking system.
One reason behind the problems in the labour market is that we have not really been able to keep up with the structural change process that follows in the wake of globalisation or, expressed in another way, that we have not been quick enough in adapting to the increased pressure for change when, for instance, the manufacturing industry is challenged by low-cost countries in eastern Europe and Asia. To summarise: our look back in time leads to the conclusion that the change in monetary policy regime was a success, despite the fact that the period since the mid-1990s was a fairly turbulent time for conducting monetary policy. There have been, for instance, periods of considerable financial  4/7  unease and extraordinary events of various types. A few of the many examples are: the Asian crisis, the Russian crisis, the IT bubble and the acts of terrorism on 11 September 2001. In addition, food prices and various energy prices, in particular oil prices, have periodically varied substantially for varying reasons, such as war, natural disasters and dry summers. I would now like to give you a brief summary of the current economic situation and then conclude with a few thoughts on future challenges for monetary policy. The current economic situation As you have probably noted, we Executive Board members chose to hold the repo rate unchanged at our most recent monetary policy meeting in late October. This decision was also in line with market expectations. The outlook for the Swedish economy is bright.