It is a pity that government accounts, which affect everyone in a society in a compulsory way, are less transparent, less well audited and less understood than the accounts of companies listed on the stock exchange, which only affect few people. Sweden has pre-decided ceilings on government expenditure three years ahead and a target of a 2 per cent surplus for the public sector over the business cycle, a figure that includes pension savings and that, given an ageing population, is in fact akin to targeting a balanced budget over the cycle. This target is present in the debate of every budget. The National Institute of Economic Research comments on the target and helps the public to understand it. This keeps the government accountable not only in the normal political sense but also in relation to the targets agreed upon. The political debate is in a sense being taught to keep the long term in view. The public then knows from the national debate that fiscal discipline is good for the country and, if “accountants” in Brussels or other nations criticise your budget policies, there is a greater chance of the criticism being interpreted as a help towards fiscal soundness. The Swedish trade unions, for example, are among the most vocal defenders of our budget target. The expenditure ceilings have been respected but to some extent with the help of creative accounting. In addition, the last couple of years no decisions have been taken on the ceilings for all three years, as was intended.
Eva Srejber: Greater budgetary discipline in the EU through transparency and national ownership Speech by Ms Eva Srejber, First Deputy Governor of the Sveriges Riksbank, at a breakfast seminar organised by Ernst & Young, Stockholm, 26 September 2006. *  *  *  Fiscal and monetary policy are interdependent. A government needs transparent and consistent monetary policy to know how to conduct fiscal policy. Similarly, no monetary policy will be sustainable if there is a rapid accumulation of debt. This is what Sweden witnessed in the 1980s and the early 1990s. An unsustainable mix of fixed exchange rates and lax fiscal policy, which led to high inflation and eventually to a crisis that landed us with an even higher mountain of debt. When the regime collapsed, General Council decided that the Riksbank should work towards a direct inflation target. The Riksbank determined that the target would be two per cent. Today this policy is hailed as a success. However, the real breakthrough for the new regime was in the mid-1990s when a forceful implementation of fiscal consolidation, supported by a broad political majority in parliament, made the macroeconomic set-up as a whole credible. It was only then that inflation expectations among the public finally fell to the target of 2 per cent, and interest rate spreads against Germany were reduced substantially. This fiscal tightening could in turn be based on the predictability of the new monetary regime with a clear inflation target. And the tighter fiscal policy would eventually allow less restrictive monetary policy.