should focus on issues which are exclusively under our control. pleasant words, “ stunts ” from the past or delaying price increases cannot do the trick, not in the medium run, and even less in the long run. though we in the nbs are satisfied with the core inflation result achieved in the course of the current year despite the untimely elections and the related fiscal expansion, doubling of the price of oil, and the drought, on the eve of 2008 we are more than concerned and put a question to ourselves : should the prevailing tendencies persist, can the nbs reach its objectives with the instruments at its disposal or must there be new ones added? one thing is for sure, to achieve our objectives, we shall use all the instruments at our disposal, both old and new, but that shall not make us popular. that much i can tell in advance. • high exposure to foreign currency risk creates additional risks to the financial sector as confirmed by the developments during last two weeks. if arguments extended by the nbs on the need to borrow in dinars do not seem plausible enough, i sincerely hope that recent developments in the market shall force many to reconsider which currency they should borrow in, namely, how to minimize their exposure to the foreign currency risk. the role of banks is of the highest importance in terms of warning against foreign currency risk exposure, if not for the sake of their clients than for the sake of their own balance sheet results! • in the absence of adequate market competition, price signals are transferred slowly and inaccurately. this is most evident in the case of prolonged and high appreciation of the dinar which is transferred to retail prices with a significant delay. world practice points to the rigidity of prices, but it seems that they are practically “ cemented ” in serbia today. i sincerely hope that something shall be done in that respect, and done exclusively for economic reasons. all in all, from the macroeconomic point of view, both internal and external challenges require that banks, unless they have already done so, reassess which way and how to proceed. in his biography, alan greenspan says that market produces constant stress as in order for someone to gain, someone else has to lose. i fear that many are not yet aware that the market is not a guarantee, but a chance to make money! and finally, allow me to go back to where i started from. strong and stable banking sector, primarily in terms of high quality and reliable ownership structure,

single currency area comprising 16 countries and 330 million citizens. in addition, the ecb has been successful with its reliable policies in anchoring future inflation expectations in line with the definition of price stability. this is another of its achievements. citizens and financial market agents consider the ecb ’ s stability target to be a credible one, and continued to do so even during the difficult conditions of the financial crisis. fixing a quantitative definition of price stability was a key factor that contributed to the solid anchoring of inflation expectations. the definition was useful both in times of increased inflationary pressure – not least in the first half of 2008 when oil prices were high – and in times when risks of deflationary developments were being discussed by the markets – as occurred during the peak of the financial crisis in autumn 2008. the current financial crisis represents a break not experienced in the world economy since world war ii. the challenges posed by the crisis are immense, and in many areas we are still at the beginning of implementing the unavoidable and necessary changes. it is now clear to all actors that, in a globalised world, mistakes at the individual level – for example, unsustainable business models of certain large banks – can very quickly amplify into developments at the aggregate level that lead to dangerous imbalances across the entire system. this holds all the more if there are already marked imbalances within the system at the outset, such as in the current accounts of important economies. it was thanks only to the extremely speedy, comprehensive and well - coordinated monetary and fiscal policy interventions that, in autumn 2008, panic on the markets was held at bay and that a widespread stabilisation was subsequently achieved. in europe, in particular, the crisis management proved to be effective. this should not be forgotten when drawing all the necessary lessons from the crisis, not only globally, but also at the european level and within the individual member states of the euro area. at the international level – within the g20 and supported, in particular, by the financial stability board – there is agreement that the global financial system must be made much more resilient and less susceptible to risk. in the eu, cooperation between national supervisory authorities will be improved through the creation of a european system for financial supervision. in addition, a european systemic risk board ( esrb ) is being established, which will issue early warnings and recommendations in order to prevent risks from arising that threaten the financial system as a whole. the ecb will provide