Before the crisis, many countries focused financial regulation on the risks faced by individual financial institutions (as indicated by Basel II), and macroeconomic policy on the preservation of price stability. This approach may have worked well during calmed times, but it also may have allowed hidden financial risks to build up unchecked. As a result, there is growing consensus that the pursuance of macro financial stability has to be considered in its own right, in a way that combines micro regulation with a systemic view of the financial system. BIS central bankers’ speeches  1  However, while there is consensus in the approach, there is still debate on what institutions should be in charge of ensuring financial stability, and in particular, what should be the role of central banks. There are advantages in having central banks involved in preserving financial stability, but these advantages do not necessarily mean that they have to be the sole institutions in charge. Central banks have a systemic vision of the economy that allows them to visualize links between different players of financial systems and their potential consequences for the real economy. Also, as lenders of last resort, the preservation of financial stability is of natural interest for central banks. Thus, even if not formally in charge, central banks should and do care about financial stability. But at the same time, there are important risks in having central banks in charge of financial stability. First is the risk of diluting the mandate of the central bank and damaging its credibility.

Above data suggests that in the long run low ability to generate innovation combined with low value added FDI may harm the CEE ability to improve productivity. Summing up, with the inflation headwind expected in the coming few years CEE central banks will face a possibly steep sacrifice ratio when controlling inflation. Keeping inflation at the target consistent with EMU accession may require sizeable reduction of the output gap, which in turn may make fiscal targets difficult to achieve. Tail wind of globalization appears to be fading in the coming few years and if agflation or surge in other commodity prices materializes, joining EMU may become “mission impossible” for many CEE countries in the next few years. The window of opportunity created by global inflation “tail wind” might have closed in 2007. References Freeman R. (2005) “The Great Doubling: America in the New Global Economy”, Usery Lecture, April 8, 2005. Georgia State University; What Really Ails Europe (and America): The Doubling of the Global Workforce, The Globalist, June 3, 2005 IMF (2000) “Globalization: Threat or Opportunity?” IMF Staff, April 12, 2000 (Corrected January 2002) McKinsey Global Institute (2005) “The Emerging Global Labour Market”, June 2005. Rogoff K.S. (2006) “Impact of Globalization on Monetary Policy”, Federal Reserve Bank of Kansas City Rybinski K. (2007) “Three faces of globalisation. Offshoring – global imbalances – monetary policy”, Difin, Warsaw 2007 (in Polish) Spiegel online (2007), “Rethinking Renewables: Biofuels Emit More Greenhouse Gases than Fossil Fuels”, http://www.spiegel.de/international/europe/0,1518,508089,00.html  4  BIS Review 137/2007