markets as many of them are the main exporters of commodities. • fourth and probably most worrisome, in several emerging market countries considerable political tensions have emerged recently, which may have been masked by the economic boom of previous years. we must not forget that the people ’ s trust in their governments is a key prerequisite for a soft landing and maintaining financial sector stability. what policy challenges lie ahead? let me conclude with some policy considerations. at the current stage it is of utmost importance that a further escalation of geopolitical tensions in ukraine can be avoided. a spiral of economic sanctions of increasing severity cannot be in the interest of either russia or the eu or the u. s. a. moreover, it is important to contain political risks in other emerging markets. the delay in the fed ’ s tapering should be used to address external and internal macroeconomic imbalances in the emerging market economies as soon as possible in order to be better prepared for the eventual monetary tightening in the u. s. a. prudent macrofinancial measures are necessary to address potential negative balance sheet effects on domestic borrowers or a stagnation in lending, which could arise in the medium run from the combination of increasing interest rates and relenting gdp growth. finally, it should be noted that global financial stability is a shared responsibility. the fed should therefore clearly communicate the path of its intended policy actions to minimize negative spillovers which could undermine the policy adjustment efforts of emerging markets. altogether i believe that emerging market economies will be able to address these challenges appropriately and that they will emerge from this crisis situation stronger and more resilient! bis central bankers ’ speeches

an important contribution to reviving europe and making it flourish again. one challenge along the way is that of gaining a more comprehensive understanding of the financial cycle – which is the topic of our conference. the global financial crisis and subsequently the sovereign debt crisis have ( once again ) strongly highlighted the key role financial developments play for economic activity and, at the same time, the necessity to review our understanding of the finance - growth nexus. let me briefly spell out what i mean by that. prior to the crisis, most economists believed that financial deepening strengthens long - term growth as it improves the allocation of resources by facilitating the collection of information, the monitoring of projects, the trading, diversifying and managing of risks, the mobilization and pooling of capital and, finally, the exchange of goods and services within the economy. 1 consequently, most observers did not consider the strong growth of private sector credit and house prices in several euro area economies ( like e. g. spain or ireland ) prior to the global financial crisis to be overly problematic but were of the opinion that it was – at least largely – sustainable. in a similar vein, the credit boom in cesee ( which started around 2003 ) and the substantial increase in house prices in many cesee economies before the global financial crisis were conceived as part and parcel of the catching - up process these economies went through – at least during the first years of the boom. given the low starting levels of credit - to - gdp ratios and of house prices in the early phases of the transition process ( as compared with fundamentals ), there was general agreement that there was a need – and indeed room – for further financial deepening in cesee. aptly reflecting these considerations, the ceei 2005, for example, dealt with the topic of “ financial development, integration and stability. ” while most of the contributions at the time emphasized the considerable potential for further financial deepening in cesee, which would increase growth and foster economic convergence in the region, several discussants aired concerns that rapid credit growth and soaring house prices, if they continued unchecked, could breed instability further down the road. oenb research at the time suggested that credit - to - gdp levels had surpassed equilibrium values ( as given by fundamentals ) in some, but not in all, cesee countries by 2005 / 06 – while the credit boom went on until late 2007 in the baltic countries and until the fall of 2008 in most other cesee economies. however, the tendency