On the contrary, lack of discipline has been inherent in the system. Confidence in monetary policy and general economic policy has been strong in the area and thanks to this confidence – and as free riders – countries have been able to raise loans at low interest rates. A committee headed by Herman Van Rompuey, President of the European Council, is assessing how coordination and monitoring of EU economic policy in the various countries can be improved. The goal is to reduce deficits and at the same time ensure that conditions are favourable for future economic growth. Without stretching the comparison too far, management of public finances in euro area countries can perhaps be compared to the management of Norwegian counties and municipalities. Under the law, they cannot go bankrupt. The government stands behind them. They have access to funding markets and can make use of the Norwegian central government’s creditworthiness. There is an obvious temptation here to borrow too much – to act as free riders – that is reminiscent of the temptation faced by the euro area states. But the Norwegian system is balanced. If local government administrations in Norway borrow too much, the central government intervenes. Municipalities and counties with a budget imbalance must apply to the Ministry of Local Government and Regional Development for approval when decisions are made on borrowing or long-term leasing agreements. The county governor, as representative of the state, supervises the municipalities.
The aim of the policy of gold parity in the 1920s was to bring the krone back to the value prevailing before World War I: “Our monetary regime is enshrined in law. (…) The regime is anchored in our legal system, which we cannot break down. Inherent therein is a moral obligation to restore the monetary  8  For more discussion of the IMF proposal, see Pål Winje (2002): “Gjeldsordning for land (Sovereign debt restructuring)”, Penger og Kreditt 4/2002, Norges Bank. 9  Henrik Bahr (1962): “ Høyesteretts dom i gullklausulsaken (The Supreme Court’s ruling in the gold clause case)”, Lov og Rett, Norsk Juridisk Tidsskrift, No. 5. See also Jan F. Qvigstad (2008): “On keeping promises”, 11 November 2008. BIS Review 123/2010  5  system to its previous condition. (…) This is a question of fundamental importance to the nation through time. The difficulties that arise in connection with the transition to normal, legal conditions are transient. No one can close his eyes to the fact they are very serious. But the life of the people is eternal and this involves a decision of significance across generations.” 10 4. What is a sustainable sovereign debt load? A debt level that is high in one country can be sustainable for another. When Norway experienced payment difficulties in 1816, government debt stood at 6 million speciedaler, or about NOK 700 million at today’s value of the krone, and was probably considerably smaller than annual GDP in the country at that time.