As was the case in the early 1990s, a crisis can arise mainly from an inappropriate domestic policy; it can also result from an external shock that hits Sweden more strongly than the average euro country; a third possibility is the failure of one or more Swedish companies of vital importance for our economy. There are other ways in which the conditions for economic policy can be affected. As a euro participant, a country has somewhat more room for manoeuvre in fiscal policy. This is really only the other side of the arguments behind the Stability and Growth Pact. Financial markets would have less reason to follow developments in Sweden, with the attendant risk that fiscal and budget policies become less sustainable. Another question concerns the effect on wage agreements. Views differ on this. Some count on a more disciplined approach if Sweden adopts the euro; otherwise a failure could then be very costly, with years of unduly weak competitiveness and growth. Others argue that as things are, the connection between wage outcomes and the interest rate in Sweden is more direct. They sometimes refer, for example, to the outcomes of the latest round of wage negotiations and the effect on them of interest rate policy in autumn 1997. This undoubtedly warrants a closer look at what the framework for stabilisation policy should consist of. A major problem in this context is clearly that, for a number of familiar reasons, it is more difficult to use fiscal than monetary policy for active economic stabilisation.
But they also alter the conditions for stabilisation policy and reduce the need for ‘insurance’. BIS Review 6/2002  1  In this context it may be worth recalling that the overheating that led up to the crisis in the early 1990s was by no means primarily due to the growth of demand being notably strong, though demand was certainly too high in relation to the economy’s productive capacity. Annual GDP growth from 1985 to 1990 was actually no more than 2.4 per cent. What really mattered was poor conditions for growth; productivity rose only 1.1 per cent and employment in hours only 1.3 per cent. If productivity growth in the late 1980s and early 1990s had been half or one percentage point higher, things could have been very different. Our tendency to concentrate the EMU discussion on stabilisation policy means that a number of important points about EMU cooperation are overlooked. They concern the longer run and aim precisely at improving conditions for growth and employment in this horizon. EMU has an important role here. Trade will be facilitated along with other cross-border activities such as investment. Simplified price comparisons can led to stronger competition. We will also have a broader and deeper capital market. Moreover, EMU implies better conditions for a stable development in the Union as a whole. Good examples are the crises in Asia and Russia around 1998 and last year’s abrupt slowdown in the American economy; had it not been for EMU, Europe’s financial markets would have been more turbulent.