ardian fullani : how the financial crisis has impacted central bank cooperation and eu economic, financial and regulatory developments speech by mr ardian fullani, governor of the bank of albania, at the high - level conference “ on international central bank cooperation before, during and after the crisis ”, hosted by the european central bank, frankfurt am main, 9 december 2013. * * * dear participants, it is an honor for me to participate in this important conference and i want to thank the organizers for inviting me. in my speech i will focus on how the recent financial crisis has changed the central bank work with respect to the adoption of macro - prudential policy and its relationship with monetary policy. then i will share some thoughts on the experience of see countries during the crisis, and highlight some of the challenges they face given the recent economic, financial and regulatory developments in the eu. the crisis we are going through, being so profound and lasting, will leave its mark on economics in general, and central banking in particular. up until the great recession, monetary policy was living in a world that we may call “ the inflation targeting era ”. in many ways inflation targeting made the central bank ’ s job relatively simple, as long as it followed the policy correctly. the central bank, seen by the public as an independent institution, had to credibly commit to an explicit inflation target, in order to anchor mid - term inflation expectations. self - fulfilling expectations from economic agents and price setters would, in turn, help deliver the objectives of monetary policy. economists believed that by stabilizing consumer prices, financial assets would also behave in a stable and predictable way. the crisis painfully reminds us that behavior in financial markets is not always rational and lack of confidence in the markets can spiral out of control, sending shockwaves throughout the economy. escalating asset prices and their sudden burst affected significantly the behavior and balance sheets of the economic agents and challenged the stability of the financial system. in this respect, the concept of financial stability was seen as a byproduct of monetary stability. micro - prudential supervision was focusing on the soundness of individual financial institutions, with the belief that this was sufficient to ensure aggregate stability of the financial system. again, the recent financial crisis made it clear that micro - prudential supervision was insufficient to detect and address buildup of risks in the entire financial system due to externalities, herd behaviors, common exposures and pro - cyclicality in financial

low carbon economy ; third, the completion of the financial union ; and fourth, institutional reforms in the governance of the economic pillar of the economic and monetary union. technological progress, product and process innovations are key drivers to long - term growth as recalled by professor christopher pissarides in his presentation at the sintra ecb forum on central banking, 6 who stated that europe as a whole was not doing very well in this field, although there were exceptions. ibid. let us note that the current accommodative monetary policy and its effectiveness should not be used as an excuse to delay necessary structural reforms. “ structural perspectives on european employment : the role of innovation and growth ”, sir christopher pissarides, professor, london school of economics and university of cyprus, paper presented at the ecb forum on central banking, sintra, 22 may 2015. bis central bankers ’ speeches this points to the need to improve the ecosystem of innovation throughout the different stages, from basic research to successful market applications. there is still a too broad and deep death valley along this process. second, the transition to a low carbon and more resilient economy represents another key challenge in this respect. this is a global problem. europe is, however, a key player in this field, as the forthcoming united nations climate change conference in paris demonstrates. climate preservation is not only a necessity but also, as continuously stressed for example by nicholas stern, 7 an opportunity for the enhancement of the co - evolution of growth and structural change. third, the financial union has also a strong potential to support future growth. the banking union has to be completed and the capital markets union has to be launched successfully. you will discuss that in detail over the next days. allow me only to touch on one specific element, which by the way was considered important enough by “ the economist ” for a cover story some months ago, with the title “ the great distortion – a dangerous flaw at the heart of the world economy ”, 8 namely the difference in taxation between debt and equity. this point has also briefly been touched upon in the comprehensive eurosystem contribution to the commission ’ s green paper on building a capital markets union. let me quote part of the relevant paragraph : “ initiatives in taxation should aim to reduce the preferential treatment of debt financing as opposed to equity financing … this can facilitate a greater reliance by firms on equity and have a positive impact on their access to other forms of finance. it could also be important to re