Unemployment, in particular among youth, has risen sharply and many people have a dark view of the future. In the meantime, the acute crisis in the euro area must be addressed. Banks and governments have fallen into a vicious cycle. Banks were rescued by extensive government measures during the financial crisis, but banking sector exposure to sovereign debt is substantial. This debt has not vanished, but shifted hands. When a country’s debt-bearing capacity is called into doubt, it also has an adverse impact on banks. The events of recent years have brought fresh experience and reminded us of several historical lessons. Economic policy must be sustainable. Governments must save during upturns in order to weather downturns. At the same time, there are limits to what economic policy can accomplish if the economic foundations are eroded. A competitive business sector is crucial to maintaining growth and welfare. This also applies to Norway. The financial crisis was a reminder of how risk can be mis-assessed. Moreover, risks that operators seem to be managing well individually may prove to be a considerable strain on the financial system as a whole, which warrants contemplation of the new macroprudential surveillance framework that is now in the making. Norway, which is in a surplus and net asset position, faces some particular challenges. As investor and manager of the Government Pension Fund Global, we have seen that prices  2  BIS central bankers’ speeches  and yields can react strongly to uncertainty about the future.
Øystein Olsen: Economic perspectives Address by Mr Øystein Olsen, Governor of Norges Bank (Central Bank of Norway), to the Supervisory Council of Norges Bank and invited guests, Oslo, 16 February 2012. *  *  *  Demanding time for Europe “The year started without much hope, and it had to be expected that the pressure on business and industry would intensify, but however dim the prospects might have appeared, the outcome was darker than anyone had imagined. I need not enumerate the successive collapses that spread from country to country.” This was the opening of the annual address delivered by Norges Bank Director Nicolai Rygg 80 years ago. Britain had abandoned the gold standard and one country after the other, including Norway, followed suit. Interest rates had increased. Financial markets were turbulent. Although the tremors were on a greater scale in the 1930s, Nicolai Rygg’s description could serve as an apt retrospective today as well. In the course of the past two years we have seen economic problems spread across debt-laden countries in Europe. Greece was the first country to experience a financial collapse. The Greek government had to resort to external financial assistance in spring 2010, followed by Ireland and Portugal. The turbulence spread further in autumn last year. Interest rates on public debt rose markedly for Spain and Italy and thereafter Belgium and France. Several euro area countries are now struggling with soaring public debt and weak competitiveness in addition to restructuring and public budget cuts.