At that time the Riksbank was legally responsible for the choice of exchange rate regime and ERM participation was considered simply as a way of preventing the flexible exchange rate regime from becoming a formal obstacle to Sweden's possible full participation in the monetary union. When the Government then judged that there was insufficient public support for Sweden's adoption of the euro, the question of altering the exchange rate regime ceased to be relevant. When the independence of the Riksbank was formalised in 1999, the legislation on exchange rate policy was amended. Today the exchange rate regime is chosen by the Government, while the Riksbank decides on issues of its implementation. So it is the Government that decides if and when the krona is to join ERM2, whereupon the Finance Ministry and the Riksbank discuss the SEK/EUR exchange rate that is compatible with a stable economic development. I want to make it clear that, contrary to the impression one is liable to get from reports in the media, this process is not to be seen as a struggle between the Riksbank and the Finance Ministry. There are extremely good reasons for these two institutions to agree on a joint line of action. Otherwise it is likely to be difficult to argue Sweden's case effectively in the subsequent discussions with our European partners.
6  BIS Review 65/2002  If Sweden joins ERM2, the responsibility for maintaining economic balance rests essentially with the Government and the Riksdag. In the event of a referendum next autumn resulting in a majority for Swedish entry into the EMU, followed by entry to ERM2, the fiscal policy that is already being established this autumn will be highly important. However this may, the Riksbank should do what it can to contribute to price stability being maintained also in ERM2. Under these circumstances there are grounds for continuing to make forecasts, publish Inflation Reports and set the repo rate in much the same way as at present. Neither do I see any reasons for altering the inflation target. But the room for manoeuvre in monetary policy would rapidly narrow as entry to full monetary union approaches. At the same time, exchange rate stability in ERM2 is important but the potential risks of conflicts between price and exchange-rate stability during this short period should not be exaggerated. It is natural that the central rate in ERM2 will be the conversion rate in the changeover to the monetary union and this reduces the scope for speculation. The objective of monetary policy in Sweden as well as the euro area is price stability. Moreover, the process for EMU entry by other countries was calm even though the circumstances in a number of cases were more difficult than they look like being in Sweden's case. BIS Review 65/2002  7