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European Cross-Border Cooperation to Safeguard Stability & Manage Crisis in the Financial Sector. *Presentation by Per Callesen, May 21, 2010. “ Global Financial Crisis: Lessons for the Stability of the Financial Sector” Conference, Warsaw. Organized by the BGF Guarantee Fund of Poland.

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european cross border cooperation to safeguard stability manage crisis in the financial sector

European Cross-Border Cooperation to Safeguard Stability & Manage Crisis in the Financial Sector

*Presentation by Per Callesen, May 21, 2010

“ Global Financial Crisis: Lessons for the Stability of the Financial Sector” Conference, Warsaw.

Organized by the BGF Guarantee Fund of Poland

*Views and assessments are made on a purely personal basis

overview
Overview
  • Policy implications of the sovereign debt crisis
  • 2008 crisis management benchmarked against the MoU and its principles
  • Revisiting controversial issues in preparing for the 2008 MoU
  • Broader remarks on stability in the financial system
1 policy implications of the sovereign debt crisis
1. Policy Implications of the Sovereign Debt Crisis
  • No financial stability with disorderly public finances.
  • Sustainable public finances are mainly a national interest and obligation. But much needs to be done at the European level as well:
  • Re-coupling fiscal policy and it’s underlying decisions. Stronger role of the ECOFIN.
  • Stronger differentiation of fiscal policy advice.
  • Take current account imbalances and inflation into account in fiscal surveillance.
  • Stronger political follow up with peer pressure, political and economic sanctions.
2 2008 crisis management benchmarked against the mou it s principles
2. 2008 Crisis Management Benchmarked against the MoU & it’s Principles

The crisis unfolded very differently from anticipated in the MoU, and so did intervention:

  • Case-by-case management given up early. Fairly good EU-cooperation on systemic approach, after a difficult start.
  • Protection went far beyond expectation.
  • Mixed experience of cooperation for intervention in specific institutions.
  • Competition rules important, but difficult.
  • Contagion became an overarching concern across the board.
3 revisiting contentious issues from preparing the 2008 mou
3. Revisiting Contentious Issues from Preparing the 2008-MoU
  • Moral hazard. The discussion on whether to mention possible public intervention has been fully overtaken by events. But setting the conditions remains as difficult.
  • Preparing for burden sharing. The mood has shifted towards favoring comprehensive preparation. Possibly also to some degree towards ex ante arrangements.
  • More decisive approach towards cross-border stability groups
4 broader remarks on stability in the financial system
4. Broader Remarks on Stability in the Financial System
  • An effective financial sector is needed to spur private demand
  • But it has to become stable
  • Discretion has a limit. Look for automatic stabilizers, like provisioning.
  • Strong dilemma between need for stronger competition and preserving stability
  • Don’t forget that bad macroeconomic policies in good times played a major part
  • Macroeconomic policy mistakes are very costly
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