sensitive to high deficits and growing public debts. one should bear in mind that the scope for using fiscal stimuli is rather limited in countries with high levels of foreign debt since increasing public consumption leads to a further increase in foreign debt and higher cost of borrowing. serbia ’ s foreign debt is already relatively high – almost 80 % of gdp and any further increase in fiscal deficit would only lead to its further rise. it is probably more opportune in such circumstances to consolidate fiscal policy and thereby open up the room for a more efficient implementation of the monetary policy on the way to recovery. allow me to reiterate – fiscal and external imbalances are often connected and, represent the key factors for the assessment of macroeconomic sustainability and the risk premium of any country. therefore, any valid strategy of recovery, i. e. exit from the economic and fiscal crisis, must take into account the effect of such growth on the external and fiscal balance of the country. only growth which leads to the achievement and maintenance of external and fiscal balance in the medium and long run is sustainable growth. only this growth can lead to a sustained decrease in serbia ’ s risk premium and hence cheaper credits for the serbian state, corporates, banks and households. and that is precisely why it is better to have low but sustainable rather than high and unsustainable growth rates. bis central bankers ’ speeches the argument that serbia should persevere on the path of investment and export - led economic growth and that the key role in its achievement should be played by structural reforms and fiscal consolidation was also suggested by standard & poor ’ s in its official statement in march 2011 when serbia ’ s credit rating was improved from bb - to bb : “ the increase of serbia ’ s credit rating reflects the agency ’ s belief that the implementation of economic policy in serbia has improved and that the country has gained a new momentum when it comes to fiscal consolidation, structural reforms and economic rebalance. ” the national bank of serbia, on its part, shall continue to strive towards stabilising inflation at a low level and preserving a healthy financial system, which, i am utterly convinced, represents the best way to help the economy in current circumstances and contribute to the creation of an environment conducive to business and investment. the more effective fiscal consolidation and structural changes are, the more easily will the national bank of serbia achieve its objectives with less monetary policy restrictiveness. bis central bankers ’ speeches

shop floor / products / services inflation alone, as a key variable, in monetary policy response. for what happened was unprecedented in that with monetary policy focused only on traditional cpi, interest rates were kept low in spite of exploding prices of assets like real estate / property, credit assets, equity and commodities. and this was all made possible because of the huge current account surpluses in china and other emes, and huge private capital inflows into emes in excess of their current account deficit, getting recycled back as official capital flows into government bonds of reserve currency countries, especially the usa, resulting in compression of long term yields which, in turn, translated into lower long term interest rates even for the riskier asset classes mentioned above. this chasing of yield, due to global savings glut, in turn, led to unprecedented underpricing of risk as reflected in the all - time - low risk premia with junk bond spreads becoming indistinguishable from investment grade debt! such a low interest rate environment coupled with luxuriant supply of liquidity, created enabling environment for excessive leverage and risk taking so much so that american household debt exceeded the country's gdp! this, in turn, led to a sort of the so called “ ponzi finance culture ” where, with personal savings rate at close to zero, consumption spending binge was driven through withdrawal of home equity made possible by omni - present home equity loans rather than through incomes! thus, the entire debt binge was spent in consumption and not investment, leading to a veritable partial deindustrialization of america, as it were, with the possible exception of the services sector. all this while, the us growth story stayed non inflationary due primarily to cheap imports from china, asia and emes. in a refreshing and instructive contrast, in an almost identical macroeconomic environment in the usa in the 1980s, the volcker fed resolutely tightened monetary policy to counter the potentially inflationary impact of unsustainably high fiscal and current account deficits of the usa as a result of which, and also the fact that, unlike this time, there was no savings glut, us interest rates rose almost to 18 - 20 %! this fed action saved the day in as much as the risk premia became very high ex ante avoiding, unlike in the recent crisis, underpricing of risk and the financial meltdown although it exacted its toll in the