market only six months ago seem quite unattainable today even to some countries that recently joined the eu. besides, the financial market is expected to be much more critical of some banks which until only recently managed to quite easily cleanse their balance sheets through securitization! in all, “ seven years of fat cows, i. e. high liquidity ” is already long behind us, and even if it still prevails in some isolated spots, it is exclusively due to massive support primarily from the central banks in the euro zone, england, switzerland, and more recently the usa! • inflation challenges, primarily in the euro zone, seem to be ever more present, and the ecb is sailing between the scylla and haribda. inflation in germany has reached its 13 year high, m3 continues to grow fast – and these are the two main signals used by the ecb when deciding on the level of its reference rate. on the other hand, economic growth is losing its momentum, financial sector issues seem more and more complicated every day, and the currency is getting stronger with all its positive ( e. g. cheaper imports of energy products ) and negative effects ( loss of competitiveness, primarily in the usa ). it has been long since the money, i. e. cash, was as expensive as it is in today ’ s market notwithstanding the above injection of liquidity by central banks! • the issue of home – host supervision comes back as a boomerang with every new crisis in the banking sector. be it bacag in austria or ikb in germany, the issue remains the same – distribution of responsibilities is being redesigned, both within the country ( austria ) and at the level of the eu ( e. g. northern rock bank ). we have been scrutinizing all of the above factors primarily from the aspect of their impact on serbia, in which a ) relatively easy and cheap borrowing abroad represents the key prerequisite to financing of the bop deficit, b ) inflationary pressures in the euro zone due to high level of eurization spill over into serbia relatively quickly, and c ) 80 % of the banking sector is in the majority ownership of well ranked strategic owners from eu countries. internal factors : • inflationary pressures in serbia are growing under the influence of both external and internal factors. and while the possibility to influence external factors seems quite negligible even by much bigger countries than serbia, i am of the opinion that we

radovan jelasic : global compact, social responsibility and global financial crisis speech by mr radovan jelasic, governor of the national bank of serbia, at the regional conference on social responsibility in the chamber of commerce of serbia, belgrade, 4 november 2008. * * * the overwhelming interconnectedness of modern economy on the global scale has been positively confirmed over the last several weeks when the whole world was shaken by turbulences in international capital markets. their effects are evident across all continents and the bout of instability which ensued has again brought to the fore issues like confidence, transparency in private sector operations, the role of the state, profits and bonus payments, as well as the responsibility to educate financial services consumers. i am addressing you here today not only as the governor of the national bank, but also as a representative and a participant in the un global compact, an important initiative launched in serbia with the support of the undp almost a year to date. as you are certainly aware, this initiative promotes socially responsible behaviour, a notion of mounting significance in turbulent times such as these, the role of which shall no doubt grow in future. today, i wish to discuss briefly the effects of the events on the world financial market on serbia and the role of social responsibility within that context. confidence in the financial sector is particularly significant in serbia in view of its turbulent political and economic history. decline in economic activity in developed countries has three main features : 1. in general, people in the west tend to save more, and they save with banks. in serbia, however, there is a saying “ he who is bitten by a snake fears a lizard ” and, unfortunately, the volume of savings in serbia declined in october. however, by withdrawing their savings deposits from bank accounts citizens manage only to multiply the negative effects coming from abroad, and everybody involved stands to loose : citizens lose out on interest earnings, those needing money get smaller and more expensive loans and the state gets less in tax revenues as gdp declines! 2. decline in economic growth in western countries induces decline in inflation due to weaker demand. but in serbia we have often had stagflation, which means minimum / negative economic growth at increased growth in inflation, primarily induced by insufficiently developed market mechanisms, i. e. monopolies and oligopolies. 3. western governments offer sizeable amounts of money, i. e. implement expansionary fiscal policy. but in serbia, we implement expansionary fiscal