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The Impact Of The Euro Crisis And Investment Opportunities In Bosnia And Herzegovina

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The Impact of the Euro crisis on the Financial Stability

What is the euro crisis? By the euro crisis I do not mean only the crisis of the eurozone, but all the underlying crises behind it. It is a sovereign debt crisis, it is a real sector crisis and a financial/banking crisis at the same time. But first of all, it is a crisis of confidence, confidence in the existing model. We have to face the harsh reality.

I would like to thank the organizers for the invitation, hosts for the great venue; as always, Oxford is an extremely stimulating environment for intellectual exercises and confrontations (explain why confrontation is good for creativity). There is only one big drawback for having this Workshop here, the opportunity cost of not seeing Sarajevo again. But, ten minutes is not much to talk about the euro crisis alone, to say nothing about its impact, especially on the region and on BiH in particular. I have organized my comments around the following topics. First, clarify a little bit the term euro crisis and its magnitude, second, talk about the impact on the financial system in particular, and finally, have a look into the crystal ball to foresee the possible consequences for BiH and the region.

I want to say that the topic of financial stability is very dear to my heart. Long before the crisis I advocated the need for central banks in the region to have a financial stability review. I have read my memos to the CBBH from June 2006, when we started working on the FSI, on the reorganization of the department, etc. I am very pleased to say that much was achieved.

It is interesting to mention that almost five years ago, in mid-September 2007, we celebrated the 10th anniversary of the Central Bank of Bosnia and Herzegovina. I attended the second session: “Monetary Stability in the Function of Financial Stability” and the title of my presentation was “Financial Challenges for the B10 Central Banks”. Boy, was I right. Although there were not many banking or financial crises in the region, central banks had a full plate dealing with financial stability in those last five years and will continue to do so. But first the good news, not only for the first ten, but for the whole fifteen years, the central bank has successfully kept its currency board. This is no small feat, solid reserves, the principles of currency board preserved and, as far as I can see from the aggregates, the credibility of the currency is there. Congratulations to the Governor (and, of course, to his predecessor, as well as to all CB board members and staff). I have no doubt that the credibility of the currency board will continue. However we should not take it for granted, as I will try to explain…

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