The price stability target was written into the law in 1999, at the same time as monetary policy decisions were delegated to an independent Executive Board. The fiscal policy framework For its part, fiscal policy would focus considerably more than previously on keeping public finances in good condition so as to maintain market confidence. The budget process was changed so that it would be easier to gain control over government spending, while public net lending would, on average, be positive through the so-called surplus target.7 The purpose of the latter was, of course, in the long run to get rid of the rampant government debt and to restore confidence in public finances. Industrial Agreement Swedish wage-formation also changed. It now works in a completely different way than in the 1970s and 1980s. One important reform was the so-called Industrial Agreement in 1997, under which the manufacturing industry has set the benchmark for wage negotiations and ultimately steered wage cost increases in the entire economy for almost twenty-five years. 6 Dagens Nyheter, 20 November 1992, Section A, p. 5. 7  For a discussion on the interaction between fiscal and monetary policy, which is not specifically addressed in this speech, see Jansson (2021). 5 [16]  ...laid the foundations for positive developments The ‘total renovation’ we made after the 1990s crisis has contributed to the overall positive developments during these past thirty years. The Swedish economy is working better. I would just like to briefly mention a few examples of this.
In a final attempt to stop the currency outflow, the Riksbank first raised its policy rate to 75 per cent again on 16 September 1992 and then, at 15:20 on the same day, to 500 per cent. At the same time, the pound sterling and the Italian lira left the ERM and were allowed to float freely. In this situation, the government and the opposition managed to agree on a crisis package that was presented on 20 September, intended to strengthen the state budget by SEK 40-45 billion. The Riksbank then cut the rate to 50 per cent. After a second crisis package at the end of the month, the interest rate could be cut further, to 24 per cent. This calmed the market somewhat and the Riksbank was able to gradually lower the marginal rate to 11.5 percent in the late autumn. However, the calm was only temporary. In mid-November, the outflow of foreign currency began to accelerate again. Repeating the same manoeuvre with a substantial rate increase and further crisis packages was considered pointless – confidence had been exhausted. On 19 November 1992, the Riksbank abandoned the fixed exchange rate. When you go through the press cuttings from this period, it is not very difficult to see an image of how we were desperately using rate increases and hastily concocted fiscal policy agreements in an attempt to patch up and repair a house that was really so run down that it needed to be completely renovated.