Policy instruments could aim at affecting directly financial firms’ balance sheets or at affecting them via indirect channels, such as conditioning the demand for credit by households or the corporate sector. Setting limits on loan-to-value ratios or adjusting collateral rules to secured lending could be some examples of measures that can effectively constrain the demand for housing credit. The macro-prudential policy tool-kit also includes instruments that target components of the financial system other than financial institutions. Macro-prudential policy instruments could include measures addressing vulnerabilities stemming from financial markets – e.g. measures relating to securities markets or funding instruments such as margins and haircuts on unsecured lending. They could also comprise measures addressing market infrastructure vulnerabilities, such as encouraging a wider use of central counterparty (CCP) clearing houses for over-the-counter (OTC) derivatives trading and making CCPs comply with sound prudential standards. More broadly, macro-prudential policy tools could address financial imbalances directly and need to liaise with other policy areas, should the sources of those imbalances not lie within the financial system. Being a new policy area, progress needs to be made on a number of fronts before the implementation of macro-prudential policy can take place in earnest, at the national or the supra-national level. A number of specific issues need special consideration in this policy field, and responses to some of the issues will indicate that our understanding of macroprudential policy is maturing. Let me mention in particular the following: 1. More thinking needs to go into defining the macro-prudential policy objective itself.

The public debt to GDP ratio of 83% compares favorably with that of other advanced economies and competitors such as the US and Japan, respectively at 103% and 230%. EU is one of the core areas of global innovation. In terms of Research and Development expenditure it is not far behind the US, while in terms of number of researchers and patent application actually outperforms it. Europe and the EU offer a mature legal environment, with adequate protection for investors and intellectual property. Its macroeconomic policies remain stability-oriented and its financial system is both mature and sound. Five out of the ten highest ranked countries in the latest Global Competitiveness Index are EU countries. Furthermore, I would like to emphasize, apart of Eurozone, there are other countries in the Eastern and Southeastern Europe which offer a qualitatively different picture. Up to 2008 they included some of the fastest growing emerging economies. These are fast growing economies, with better demographic trends. They offer untapped growth potential, in terms of qualified work force, business friendly environment and stable institutions. European integration process has been the main anchor and major driving force of growth and convergence. Therefore, I strongly urge countries of the SEE region to dedicate substantial efforts towards a closer regional integration in infrastructure, markets, education and legal framework. Deeper economic regional integration will increase the competitiveness of the region from European and global perspective.