Secondly, as I recently noted, many countries have experienced problems with large deficits in their public finances. This is a problem that has now become acute, and needs to be dealt with. We in Sweden are all too well aware of the confidence problems that can arise from mismanaged public finances. It is of course easier to make the necessary consolidation if private sector demand is kept up. One could say that many countries therefore need to undergo what could be described as an internal adjustment of demand – from public to private. 2 Thirdly, an external adjustment of demand is also needed. Many countries in the western world, and not least the United States, which was overly dependent on high domestic demand before the crisis, must rely more on exports in the future. Correspondingly, countries which have accumulated large current account surpluses, and in particular China, will have to rely more on domestic demand. Thus, what is needed is a changeover from domestic to foreign demand in some countries and the reverse changeover in other countries. Create new regulatory systems There is currently fairly substantial international unity on the first issue – the need for a better regulatory framework and more effective supervision of the financial sector – even though much of the details remain to be discussed. There has also been some progress in this field. One example is what is known as the Basel III regulations, agreed by central banks and financial supervisory authorities around the world some weeks ago.
This is no easy task considering that the stakeholders often pursue differing interests. In addition, there are various potential conflicts, for example between the objective of exploiting economies of scale as much as possible – which might only be possible through cross-border cooperation – and the objective of maintaining independence. BIS Review 123/2006  3