mugur isarescu : introductory speech - ceps ideas lab : europe's choice conference introductory speech by mr mugur isarescu, governor of the national bank of romania, at the centre for european policy studies ( ceps ) ideas lab - europe's choice conference, brussels, 21 february 2019. * * * chairman almunia, first vice president timmermans, ladies and gentlemen, it is a great privilege for me to attend the annual meetings of centre for european policy studies, at a momentous time for the union. surely, the elections for the european parliament are on my mind as well, but not exclusively. as the topic of this year ’ s meeting amply suggests, we, as eu citizens, need to make the right choices so that the future of the union continues the project that has always fostered peace and economic reconstruction after the second world war. it is the same project that has helped central eastern european countries “ return to europe ” after the fall of the berlin wall. centre for european policy studies is a great scene for discussing the huge challenges our union is facing at the moment. it brings together high officials from eu institutions and national governments, academics and representatives of the civil society and business circles. i speak not only on behalf of the central bank of romania, but also as a representative of a country that holds the rotating presidency of the eu council. i trust that we will be able to fulfill our mandate and advance projects of substance for the union. let me focus in the minutes i have at my disposal on several economic issues. our debate is so more important for it takes place at a time of some economic slowdown all over europe and of an erosion of multilateralism, of spreading trade conflicts. the prospect of a hard brexit is very annoying for all of us and i still very much hope that such a denouement would be avoided. likewise, it is high time to strike a deal on the multiannual financial framework so that the great challenges the union is facing ( protection of borders, cyber fare, climate change, conflicts in near and more remote neighborhoods, etc. ) find proper conciliation with the need to preserve the cohesion of the union and avoid further fragmentation. i also trust that eu leaders will find the right balance to address key institutional and policy related weaknesses of the euro area. i mention this, for romania, like other non - member states, is bound by eu accession treaties to join the single

tendencies ), the accumulation of systemic risks in non - banking markets. when it comes to monetary policy let me mention a few challenges. the models central banks use have baffled in quite a few instances ; we still do not have clear answers as to why inflation is persistently so low in most of the union, in spite of economic recovery. financial stability concerns are increasingly on our radars. there are other puzzles, like the flattening of the philips curve and i would range here the fall of financial intermediation in some non - member sates – in romania and hungary in particular. this seems to be a clear case of credit - less recovery, but that may also be the outcome of financial integration – for international companies prefer to source credit on external markets ( where these may be cheaper ). the global financial cycle poses a major challenge. this is also due to the operations of major central banks, to their unconventional policies ; policy reversals can cause major pains, especially where there is much external indebtedness, public and / or private. as helene rey says, the trilemma ( free capital flows, exchange rate stability and autonomous monetary policy ) may have turned into a dilemma ; and that the power of monetary policy rests with the ability to control capital flows – which is a huge tall order. the resort increasingly to macro - prudential tools shows that, de facto, some kind of capital controls revival is under way, for the sake of both monetary policy effectiveness and financial stability reasons. i would argue that exchange rate flexibility has been quite helpful for undertaking macroeconomic adjustment, in romania, too. under - development creates additional challenges for monetary policy since catching up is accompanied by higher inflation ( the balassa samuelson effect ). this may not be a problem right now in view of the overall context, but it will likely turn out to bother us in the not too distant future. migration of human capital ( which is a very intense in some of our countries, including romania ) 2 / 3 bis central bankers'speeches also puts a lot of pressure on wages and fuels inflation. let me turn now to a few regulatory issues. it is widely accepted among professionals, among us, central bankers, that the european banking sector has cleaned up much of its balancesheets, that it is better capitalized. likewise, the reforms of the regulation and supervision of the financial industry has taken us in the right direction, and much has been accomplished to make our banks safer. but