A crucial point is to avoid any tax distortions that might mean these products are penalised more than liquid and risk-free investments. This level playing field in terms of taxation should also apply to the companies that are financed: in other words we need to avoid making debt financing more attractive than equity financing… and we know we have a long way to go on this. The second avenue for fostering equity financing is to boost cross-border capital flows within the euro area. One of the great paradoxes of the single currency bloc is that investment is too low while savings are generally in plentiful supply: the region has a high current account surplus, of more than EUR 300 billion per year, or over 3% of GDP for the 12 months up to end-September 2015. The problem is that these savings cannot circulate freely between member states due to financial fragmentation. This situation has serious consequences. It generates a growth lag, as excess savings in core countries are unable to satisfy the demand for investment in the periphery. It also makes the euro area more fragile, as national shocks cannot be smoothed by fiscal transfers – due to the lack of a fiscal union – or by stable, longterm private sector capital flows. By way of comparison, in the United States, 39% of shocks  BIS central bankers’ speeches  3  are absorbed by capital flows between federal states and only 13% by government transfers.
In one of his books he wrote: “If prices rise, the rate of interest is to be raised; and if prices fall, the rate of interest is to be lowered; and the rate of interest is henceforth to be maintained at its new level until a further movement of prices calls for a further change in one direction or the other.” Just over three decades after his address in Stockholm, Sweden had to leave the gold standard in September 1931. The objective of monetary policy was declared to be to use “every available means to maintain the Swedish krona’s domestic purchasing power”. In this way BIS Review 58/1998  -2-  the Riksbank was the first central bank to declare openly that its monetary policy norm was price stabilisation. Notwithstanding this long tradition, after inflation’s rising trend in the post-war era, Swedish economic policy’s reorientation toward price stability did not begin until the late 1980s and early 1990s. That was a decade or so after such realignment had been initiated in other countries. By then, Sweden had experienced twenty years of inflation that averaged 8 per cent a year. That was the longest inflationary period since the early nineteenth century. In contrast, in the one hundred and forty years from 1830 to 1970, inflation in Sweden had averaged an annual rate of 2 per cent. So one can say that in the present decade we have been re-establishing our roots. Sweden’s policy realignment in the early 1990s was, however, more painful than anyone could have foreseen.