Together, these forces are reducing the cost of providing traditional financial services and are paving the way for new ways to channel savings and manage risks. Structural developments in the financial sector can be important for monetary and financial stability. Central bankers thus follow developments with great interest. Today I will examine some aspects of the changes taking place and their potential consequences for monetary and financial stability. Let me run through the structure of my speech. First, I’d like to touch upon some characteristics of the Nordic economies as a background to the financial sector issues I will discuss later. Second, I will define the two stability terms that I have just introduced. Third, I will discuss the growing importance of securities markets. I will then reflect upon cross-border integration in the banking sector and consequences of the Internet. Finally, I will take a quick look at what challenges structural changes may pose to the authorities, and then conclude. 2. Some characteristics of the Nordic economies  The economies of the four largest Nordic countries have some well-known features that distinguish them from most other developed countries. 1  BIS Review 78/2000  For a start, they all have fairly large public sectors, as illustrated by the level of public sector employment. Compared with Anglo-Saxon countries, the differences are striking. The large public sectors are the result of a deliberate choice to ensure equal access to certain services like health care.
Normally, the timeframe will continue to be 2 years after the excessive deficit occurred. However, the revised Stability and Growth Pact now allows for the possibility to extend this timeframe to 3 years. In my view, this is a positive change since the earlier system in practice meant that countries only had a few months to correct an excessive deficit, and this did not increase the respect for the Stability and Growth Pact. However, in addition, a possibility to revise the initial deadline has been introduced which creates a risk for an excessively prolonged EDP. To summarise, some of the changes in the Stability and Growth Pact thus go in the right direction and might enhance the discipline, while other changes introduce a flexibility that could be abused. As always, the proof of the pudding is in the eating. So far, budget plans have not moved in the stricter direction despite the fact that growth prospects have improved. The yearly average deficit for the euro area will stay at about 2.4% of GDP for the next couple of years according to present plans. The structural deficit is expected to improve only marginally between 2005 and 2006 – from 2.2 to 2.1 per cent – despite a strong economy. It is important to stock up now ready for future times with lower growth. The recovery and consolidation of the EU’s largest economy, Germany, is of central importance in this context. Why have we not seen the problems earlier?