fluctuations in the economy that are due to changes in demand for goods and services. at the same time, the budgetary guidelines state that “... [ in fiscal policy ] considerable emphasis must be placed on stabilising fluctuations in the economy with a view to ensuring appropriate capacity utilisation and low unemployment. ” we can see here that there is an overlap between the tasks monetary policy and fiscal policy are intended to perform. this naturally raises the issue of whether there is after all a need to coordinate fiscal and monetary policy decisions. is there, for example, a risk of a situation arising where norges bank tightens monetary policy to achieve the inflation target, while at the same time the central government authorities increase the use of petroleum revenues ( more than implied in the fiscal policy guideline ) in order to increase employment and reduce unemployment? report 29 ( 2000 - 2001 ) to the storting : guidelines for economic policy. there are various factors that can prevent the interplay between monetary and fiscal policy from functioning. interplay functions well when the decision - making bodies are conscious of how one body ’ s decisions influence the decisions of the other. unless this fact is recognised, a decision will not produce the result that was planned. the economy may move in a very undesirable direction, with high interest rates, sluggish economic growth and deterioration in the state ’ s financial position. however, even without continuous coordination, a fairly good result may be achieved if fiscal policy acts as “ leader ” and monetary policy as “ follower ”, to use expressions taken from game theory. the authorities determine fiscal policy knowing how monetary policy will react. today ’ s flexible inflation targeting establishes a firm framework for monetary policy and provides clear guidelines on how monetary policy is to respond in different situations. the fiscal policy authorities can internalise the monetary policy response pattern. this is only natural, since the mandate for monetary policy was laid down by the government and the storting. in other words, the conditions exist for delegating the interest rate decision, but the central bank ’ s response pattern must be known, so that the fiscal authorities can take this into account. when the response pattern in monetary policy is known and remains unchanged over time, the social partners can also take any monetary policy response into account when wages are being determined. the “ leader ” in this interplay - the social partners - can take the “ follower ’ s ” - norges bank ’ s - response into account. this view

italy and france, has been associated with episodes of consolidation in the banking industry. financial performance indicators have been very good. in the last three years mainly, the banking sector has also introduced modern payment infrastructure and products, to allow for increasing usage of electronic payment cards and internet banking. undoubtedly, the banking sector has been a very important contributor in the economic growth, while preserving solid business development and financial soundness indicators. despite the solid performance in the last years, the bank of albania, in its role of the monetary authority and the exclusive supervisor of the banking sector, was vigilant to point out areas of the banking activity that required increasing attention from the industry. we have continuously expressed our concern regarding the rapid increase in lending, which at some time reached up to 8 - 9 percentage points in terms of annual growth to gdp. we were aware of the risk it would bring to the credit quality, even though this was not expected to be relevant. the composition of the loan portfolio, which is dominated by the eurodenominated loans, has always been a point of concern. despite the fact that this position is supported by a strong presence of retail foreign currency denominated liabilities in banks balance sheets, a generally supportive environment of exchange rates and interest rates over time and very close economic links to euro - area countries like italy and greece, bank of albania has been consistent in its approach to introduce gradually regulatory measures that would discourage rapid increase in lending, encourage banks to lend more in domestic currency and increase transparency toward clients on banks products and services. impact of the crisis in our economy and in the financial sector, has been increasing and … in the last quarter of 2008, the financial sector in albania started to feel the impact of the international financial crisis. the main development was an increasing sensitivity of the public for their savings in the banking sector. people started to withdraw their deposits regardless of the currency of denomination. at the beginning, there was no pressure on the exchange rate but it started to mount at the beginning of this year, when it was noticed a contraction in the inflow of foreign currency, due to a decline in exports and remittances. the quality of the loan portfolio started to deteriorate, and the nonperforming loans reached 8 percent of the entire outstanding loan portfolio at the end of april 2009. we expect this figure to edge higher, as data from the economy and surveys of business expectations and a marked slowdown in the credit availability, suggest that the economic growth