But, as a citizen, I cannot help and feel proud of having one the two main currencies in the world. In sum, benefits of the euro include a high degree of credibility of monetary policy reflected in the level of long-term interest rates; diminished exchange rate volatility; completion of the single market and encouragement to cross-border trade. None of this, of course, can be taken for granted. Benign conditions currently prevailing on financial markets can be reversed. External or internal shocks may be coming, which would impact negatively European economies. The American economy could for example slow down more sharply than anticipated. Fuelled by an excessive expansion of credit, some internal imbalances, although in no way comparable to those in some other developed economies, could also develop in the euro area, especially in the housing sector. But I have the strong conviction that we are fully equipped to deal with any contingency, and, provided the necessary structural reforms are undertaken, keep the economy on a path of growth and stability. BIS Review 3/2007  1  2)  How have those successes been achieved? A lot comes, in my view, from the institutional and operational framework in which monetary policy is developed and implemented. The independence of the ECB and of the 12, very soon 13, participating NCBs is enshrined in the Treaty. They are institutionally, operationally and financially independent from European Community institutions and national governments. We have a clear and transparent definition of price stability: inflation below but close to 2% over the medium-term.
The portion used by oil companies in Norway, partly to finance investment, also has an effect on the mainland economy. We can say that oil revenues enter the Norwegian economy through an external and an internal circular flow. The distinction between the external and internal circular flow is important for exchange rate stability. This means, among other things, that short-term changes in oil prices shall not influence the orientation of economic policy. If the distinction between the two circular flows were to break down, and the use of oil revenues were to fluctuate more in step with oil prices, we would have an unstable economy, and hence an unstable exchange rate. The Government Petroleum Fund thus has two objectives. It serves as a buffer for the mainland economy against fluctuations in oil revenues, and it manages a considerable portion of the government’s financial wealth. In addition to capital outflow from the Petroleum Fund, in recent years there have also been considerable capital outflows from various non-oil sectors. As in other Nordic countries, large asset managers such as life insurance companies and securities funds accumulated substantial holdings of foreign equities and bonds in the latter half of the 1990s. These portfolio investments abroad reflect a desire to diversify risk. The substantial net outflow of long-term capital from the private sector may partly reflect a thin Norwegian capital market. The Norwegian bond market is not very developed and the total value of equities in the Norwegian market in relation to GDP is very low.