Speech at the Economic Forum for Eastern Europe in Krynica\/Poland on September 10, 2009<\/p>\n
SUMMARY<\/em><\/strong><\/p>\n Even if the U.S. may be seen as the starting point for the eruption of the global financial and economic crisis, it should not be overlooked that many countries had made their own policy mistakes that aggravated the consequences of that global economic disaster.<\/p>\n Some parts of (South) Eastern Europe have been hit quite hard by the global financial crisis. Good and stable macroeconomic conditions, however, make the impact from such a negative exogenous development (somewhat) less painful and should open a more speedy road to recovery compared to imbalanced countries that have been hit sharply by shrinking confidence of (long-term) foreign and also domestic investors. Good general conditions and favorable microeconomic and macroeconomic equilibria may help considerably. This is one of the reasons, why the outlook for Poland \u2013 just to mention one country – after the crisis seems to look more favorable than for quite a number of other countries in the region.<\/p>\n It is worth mentioning that international competitiveness will be very important for exports once the European\/global economy starts to recover. Countries dealing with this issue now, will have a better chance to escape from the current problems than countries which in this respect are more passive. There is an obvious risk that the gap between the more ambitious and the more static countries will have widened after the crisis. Foreign investors will see (South) Eastern countries as much more heterogeneous markets than in the past.<\/p>\n The current global financial and economic crisis can to a great extent be attributed to phenomena like greed, abuse of incentives, performance pressure (\u201cangst\u201d), overconfidence, neglect of historical experience, etc. Without improved research \/ interest for behavioral finance and understanding of this exciting scientific orientation, financial regulations will be continually limited in their efficiency. The \u201chomo oeconomicus\u201d has disappeared from global financial markets.<\/p>\n Another important step forward is the recognition that regulations should be completely designed for giving the right incentives to players on financial markets. \u201cPerverse incentive structures\u201d \u2013 as Rajan calls one of the main characteristics of the current crisis \u2013 should not exist anymore in the future regulatory framework.<\/p>\n The financial crisis has shown that there is good reason for reconsidering monetary policy at least somewhat, i.e. when it comes to the importance of variables like liquidity, credit growth and asset prices in certain booming situations.<\/p>\n