A significant impact was made by tightening of regulatory and prudential regulations at European level, which were passed on to a refrained lending activity throughout the countries that have European banks in place. This phenomenon, which is  BIS central bankers’ speeches  1  technically recognised as deleveraging or reduced “risk appetite”, has brought about a phenomenon which according to McKinsey is known as “balkanization” of the European financial system. This phenomenon, either open or hidden, is rather damaging from the viewpoint of development perspectives of the countries in the region and for the European integration process. From our viewpoint, the banking system should be avant-garde in this process, by exposing the country’s competitive advantage at parent banking groups and attracting foreign investors. In its analyses, the Bank of Albania has identified the weakening demand as the main concern facing the Albanian economy. Mandated by law to maintain price stability, we assess that the low economic growth may be an obstacle to achieving our mandate in the medium run. We have, therefore, emphasised that Albania’s economic policies should be stimulating. We also deem that the fiscal policy faces lack of room for fiscal stimulus and that it should increase its orientation toward consolidating the long-term stability of public finances. Under these circumstances, we have fully steered our policies and instruments toward boosting consumption and investments in Albania. Bank of Albania’s monetary policy has been more and more stimulating. It has lowered the key interest rate for six consecutive times to record low of 3.75%.

These international funds are generally highly alert to shifts in the expectation of risk, return and liquidity. They can therefore be highly volatile, with the tendency of reversing direction whenever there is the slightest hint of trouble, in respect of the macroeconomic policies, in particular financial policies pursued by governments, the robustness of the financial markets in which they operate, the soundness of the financial intermediaries with which they deal, etc. 8. Those economies which are dependent upon such capital inflows are clearly vulnerable to their reversal. Ideally therefore they ought to pay a lot of attention to pursuing sound macroeconomic policies and be transparent about them. This has perhaps proven to be politically difficult to achieve in some cases. They also need to ensure that they are in a position to deal with the volatility that characterizes the flow of international capital. And this means having: first, an effective monetary management mechanism that is capable of delivering currency stability; second, a regulatory and supervisory framework that safeguards the integrity of financial markets and the financial intermediaries in accordance with internationally accepted standards; and third, a robust financial infrastructure that enables financial transactions to be conducted efficiently and with a minimum of risk of failure. 9. This is a tall order, even for a relatively closed financial system that operates under more benign circumstances, not to mention for a newly liberalized financial system under stressful conditions.