They range from the loss of demand in connection with the adjustment to the bursting of the bubble from the late-1980s, to more underlying structural factors. To some extent the explanations overlap and each of them certainly played a part in the dramatic course of events in the early 1990s. In order to understand what happened I believe that we have to go back to the beginning of the 1970s and the collapse of the Bretton Woods system. For it was then that the stability oriented regime - a regime that had worked well in the post-war era - broke down in our country. In the absence of a global currency system, it proved difficult to establish a regime in Sweden that would be equally stable. During the 1970s and 1980s Sweden had to manage without a distinct anchor for either monetary and exchange rate policy, wage formation or economic policy in general. We moved through a series of devaluation cycles, fiscal discipline was undermined, structural problems accumulated and wage formation ceased to function properly. When the financial sector was deregulated in the mid-1980s, the problems with stabilisation became even more difficult to manage. Meanwhile, the structural weaknesses were being concealed by an overheated economy. Activity looked strong but the potential growth rate in the Swedish economy had weakened some time before. As the 1980s drew to a close, however, there was a growing awareness that something would have to be done.
The continuation of a strong demand trend can be expected to render resource utilisation in general and in the labour market in particular increasingly strained. On the other hand, inflation is still low and the prospects to date in this respect appear to be balanced. So there are not all that many signs at present of resource utilisation becoming excessively strained. Accordingly, it seems that there is ground to believe that the Swedish economy is functioning better than before. 3  BIS Review 41/2000