If a household, firm, bank or government has become too heavily indebted, all experience to date indicates that, sooner or later, the debt will have to be restructured. Hayek would probably have reiterated the view he expressed in 1932: “ ..... the existence of public debt [on a large scale] imposes frictions and obstacles to readjustment very much greater than [the frictions and obstacles imposed by] the existence of private debt.” Perhaps Hayek, originally from Austria, had in mind Germany’s enormous reparations debt from the First World War, which probably contributed to the fall of the Weimar Republic. We should not exaggerate: after all, Europe is still a region of peace, prosperity and cooperation. This is perhaps the greatest difference between the current situation and the 1930s. Nonetheless, the 1930s taught us that deep economic crises can also have substantial social and political consequences. The European Central Bank – the ECB – is the only institution in Europe that can have a material influence on developments across the continent in the short term. The ECB is keeping government debt yields low by means of record-low policy rates and large government bond purchases. This is keeping the wheels in motion. It is also supporting 4  BIS central bankers’ speeches  government finances in a number of European countries.
The 1992 tax reform streamlined the tax system and tax rates were substantially reduced. It became easier for investors to find projects that yielded high returns. State-ownership policy in Norway was changed to introduce a clearer division of roles and healthier commercial principles. And not least, the EEA Agreement provided access to the European Single Market for most of the Norwegian business sector. When oil prices fell again in 2014, Norway was better prepared. But as a nation, our income has nonetheless been reduced by the fall in oil prices and we should be cautious about introducing measures that will increase consumption. Reasonable measures in a period of restructuring are those that promote economic growth over time, without crowding out private enterprise. Monetary policy can facilitate restructuring. And it is able to do so because there is confidence that inflation will remain low and stable. With low and stable inflation, a weaker krone and higher import prices will not pass through to wage growth and inflation, as was the case after the fall in oil prices in 1986. On the contrary, the depreciation of the krone over the past couple of years has compensated for more than a decade of high cost inflation. This has improved the competitiveness of Norwegian firms – in foreign and domestic markets. In addition, lower interest expenses are easing the burden for many households and firms. There is still room for manoeuvre in monetary policy.