It is the financial stability of the euro area as a whole which is at stake, and this creates difficulties for our monetary policy transmission. Taking into account the reality of the situation we have reactivated a number of non-standard measures. Many people nonetheless fear that the continuous flooding of the markets with new money will lead to inflation in the medium term. This fear is totally unfounded. First the Securities Market Programme (SMP), namely the purchase of Treasuries on the secondary market, is not at all a quantitative easing programme. We are rigorously withdrawing all the liquidity which is provided. As regards all our non-standard measures, the balance sheet of the ECB has expanded by 77% since the beginning of the crisis; that of the US Federal Reserve System by 226%. This gives a measure of our relative prudence in this very grave crisis. And we are fully credible to deliver price stability over the next 10 years, according to observers and market participants. In the spring, the ECB spoke out against the restructuring of Greek debt which was being discussed at that time. Now there is again discussion of a debt restructuring. Does your opposition still stand? In the spring, the Governing Council of the ECB unanimously made the following points. We cannot accept the securities of a state in default, even for a short period of time, as collateral for the refinancing of banks without an appropriate credit enhancement. Similarly, we said that a credit event should be avoided.
If we instead look at the exchange rate adjusted for inflation differences, the “real” exchange rate, we find some traditional explanations for much of the weakening that has taken place from the 1970s until the mid-1990s. Our terms of trade were weakened, productivity developed more weakly in Sweden than in other countries and during certain periods investors were concerned over a rapidly growing central government debt. However, developments during the latter part of the 1990s were rather different. The growth in productivity and GDP has been better and the inflation rate as low as the average among our main trading partners, while the central government debt has declined, which should have favoured a stronger krona. Nevertheless, the krona has depreciated. 2  A more detailed discussion of the stabilisation policy tools within the EMU can be found in the report “Stability and stabilisation policy in the EMU” (SOU 2001:62), which can be downloaded from http://finans.regeringen.se/propositionermm/sou/index.htm. BIS Review 92/2001  3  A small part of the most recent depreciation can be explained by real economy factors: the terms of trade have deteriorated slightly due to falling prices on telecom products; exports have declined more heavily in Sweden than in many other countries following on from the economic slowdown in the USA; and a falling order intake for exports has created a declining demand for the krona. However, there are also other explanations that are not directly concerned with real economy factors, but have instead been steered by financial flows, i.e.