The ECB orients monetary policy to maintain price stability, which has been defined as inflation of less than 2 per cent. 8  BIS Review 19/2001  In recent years, cost inflation in the euro area countries and among trading partners has been relatively low. Growth in labour costs in Norway has been roughly 11 percentage points higher than in the euro area and 10 percentage points higher than among trading partners for the past three years. A number of other small, open economies have recorded a decline in unemployment and lower growth in labour costs than Norway. In Sweden, unemployment has shown a substantial decrease over the past five years and wage growth is below 4 per cent. Three-year wage agreements are now being concluded, underpinning the basis for low cost inflation. In the Netherlands, unemployment has fallen to a very low level. Wage growth has picked up, but is lower than in Norway. In Denmark, unemployment has come down without an increase in wage growth. In Finland, unemployment has fallen sharply from the high level that took hold in the 1990s, and wage growth has slowed. In the euro area, unemployment has dropped without an increase in wage growth. In Norway, the high growth in labour costs may be a source of rising unemployment. Interaction with fiscal policy It is important that the annual budgets are based on a long-term strategy that takes into account possible fluctuations in oil revenues from one year to the next.
Local banks' upgrading and consolidation Since the first liberalisation package was announced, the local banks have made progress in building up their capabilities. They have generally strengthened their management teams, and invested heavily in infrastructure to provide banking services more efficiently, especially via electronic channels. They have improved their customer relationship management systems, which will allow more effective data mining of their customer databases and cross-selling of multi-sector products. Local banks have also been seeking opportunities and expanding their presence in the region. An important and more visible sign that local banks are gearing up for competition is of course the process of consolidation that is underway. The opening gambit was made on 12 June when OCBC announced that it was making a voluntary general offer for Keppel Capital Holdings which owns Keppel TatLee Bank. Ten days later, DBS made an unsolicited bid for OUB. And just three hours ago, UOB made a competing bid after reaching agreement with the controlling shareholders of OUB. All the local banks are now busy reassessing their positions. It is likely that a new configuration will quickly crystallise. MAS views this as a very positive development for the banking industry, and more importantly for Singapore. If the consolidation is well executed, a stronger group of local banks will emerge, able to hold their own domestically, provide Singaporeans with better services, and compete in the region. Let me elaborate. The importance of consolidation Economies of scale have become critical in banking today.