The notion that government ought to intervene in a market economy in order to rectify imbalances permeated economic policy for many years. Diminishing confidence in the new approach Keynesianism and its analytical methods spread rapidly. Economists in the 1950s and 1960s devoted a lot of time to computing the multiplier effects of various government measures. For a time it looked as though the economy could be steered by pulling different levers and thereby overcoming the problem of a market economy’s instability. The Phillips curve, presented in the late 1950s, demonstrated a negative relationship between nominal wages and unemployment. This further boosted the belief that the economy could be adjusted at will, leaving politicians to opt for their preferred combination of unemployment and inflation. The significance for growth of a fixed value of money fell into oblivion. In the 1950s and 1960s, Keynesian stabilisation policy seemed to be successful in many countries, not least Sweden. Economic growth was high, supported for example by the post-war reconstruction of Europe, and it was also stable, with only small cyclical fluctuations. Growing budget deficits were  2  Berg, C & Jonung, L (1999), Pioneering price level targeting: the Swedish experience 1931–1937. J of Monetary Economics, 43:3. 2  BIS Review 81/2001  tolerated during downward phases but it then proved increasingly difficult for governments to balance the budget over the business cycle. In the early 1970s, the collapse of the Bretton Woods system for international exchange rate cooperation meant that the earlier constraints on economic policy no longer applied.
Despite all the European convergence and integration, financial systems in different EU member states still look and work very differently. Trying to administer them from a single centre according to a single set of rules might be like trying, say, to feed all the animals in a zoo with a single type of food. As an illustration: the recent ECFIN Retail Banking Survey says:   in Austria almost 100% of house purchasing loans feature variable interest rates, while in France the share is only about 10%.   countries differ substantially in the share of owner-occupied housing and therefore in the importance of the mortgage market;    they differ in how intensively they use electronic means of payment;    in the significance of building societies and credit unions;    in tax and other incentives that the government provides for certain types of financial transactions;    in the extent to which local banks trade in various non-plain vanilla products such as derivatives;    in the share of subsidiaries and branches of foreign financial institutions and, more generally, in ownership structure    in the loan-to-deposit ratio, which varies from roughly 70% in some countries to more than 200% in others;    in the degree of local market concentration;  etc. There are many more examples, some of them influenced by long-term developments, some by entrenched behavioural differences and habits.