The alternative is, of course, a fixed exchange rate, which in Sweden's case would be synonymous to adopting the euro. In the short term we have managed perfectly well outside of EMU, with lower interest rates and inflation and a higher growth rate than the euro area. However, in a longer term perspective, periods of a wrongly valued krona and major fluctuations in the exchange rate – and we will probably have to live with these – may be a high price to pay. For a small economy with a large foreign trade like Sweden this is a development worth considering. Some conclusions Let me finish where I began, namely by concluding that the economic situation still appears uncertain in essential areas. The main clue is that the American economy will show an upturn, but take a more prolonged path than the V shape. However, there are imbalances that could cause a much less favourable development. In addition, the inflation rate has begun to rise more than expected. There is no sign of improvement in Japan; on the other hand there is a risk of a "cooling down" in the finance sector really taking hold, following an incubation period of ten years. In the longer-term perspective, this may be necessary to put right the underlying problems, but in the short term it may have undesirable effects on the global economy. In Sweden we can see continuing sings of a slowdown.
Financial crises typically result when we fail to identify vulnerabilities, and then unexpected triggers turn those vulnerabilities into points of weakness that can lead to catastrophic failure. The discontinuation of LIBOR, however, is different. We can see it coming, and we know the impact of a disorderly transition would be huge. Therefore, a half-hearted effort or a failure to act would be inexcusable, especially after all we have learned from the experience of the financial crisis. Moving this core piece of the global financial system to a firm and durable foundation is essential and worth the cost. This task is admittedly hard, but I am optimistic given our past successes. We have demonstrated that effective collective action can provide solutions to longstanding structural vulnerabilities in the financial system. A key lesson from the crisis is that structural vulnerabilities must be addressed continually. If they are ignored, larger problems eventually will result. For example, through collective action over the past decade, we have successfully addressed structural weaknesses in the tri-party repo market, the over-the-counter derivatives market, and money market mutual funds. Each of these challenges required a tailored solution that relied on different tools—including a diverse mix of market, regulatory and supervisory measures—to get the job done. Everything isn’t a nail, and the best tool is not always a hammer. You have to identify the problem that needs fixing and select the right tool for the job. This is likely to require both official sector engagement and private sector initiative.