Given that markets are forward-looking, they would try to anticipate any difficulty faced by a sovereign by short-selling their positions, thus triggering the crisis. This would discourage investment in the euro area because of its potential volatility and perverse market dynamics. Finally, such a measure would delay any return to the market by a sovereign, because no market participant would be willing to start reinvesting in the country for a long period if they know that this kind of investment might at some stage be penalised. This would thus discourage private sector involvement and oblige the official sector to increase its financial contribution. A clear example is the fear that private sector involvement would be sought automatically under the European Stability Mechanism. Faced with such circumstances, investors would be sceptical about buying government bonds maturing after 2013. And the statement which is often made in this country that “there will be no restructuring before 2013” does little to reassure investors, as it implies that there might be one afterwards. The proof of what I have just mentioned can be found in the data. Just looking at the yield spreads between the government bonds of the three stressed countries and those of Germany, it can be seen that they were gradually coming down last autumn until the day of the Deauville agreement and then spiked up after the October European Council, in which it was mentioned that preparatory work on the ESM would include “the role of the private sector”.
But if activity were rather to show signs of freshening, there is a risk of the existing high inflation continuing and being incorporated in our  2  BIS Review 15/2002  perceptions of inflation in the longer run, with possible effects on, for example, future wage negotiations. That of course must not happen. A scrutiny of the current cyclical picture reveals a growing number of signs that activity abroad, above all in the United States, is on the way to improving. This is something that also affects conditions for the Swedish economy. A majority of leading indicators point in that direction. Although the upward phase does contain risks to which I shall be returning, there is still a good deal of evidence that a recovery in the rest of the world as well as in Sweden may be on the way to materialising later this year. A factor that often contributes to a cyclical swing is movements in stocks. When stocks are plentiful and sales are falling, firms often cut back production so that this falls more than demand. In this way, stock adjustments initially accentuate the cyclical downturn. When the reduction of stocks ultimately comes to an end, firms may step up production again even though demand has not yet started to recover. This drives a cyclical upturn and perhaps it is just such a positive effect that may be on the way. There are signs of this in the United States in particular but also in Sweden.