to fiscally weak sovereigns, borrowing costs had risen to the point that it raised the issue of affordability and sustainability. this has left countries to choose a path of austerity to regain credibility. as these austerity measures kick in, developed economies are getting pushed back into recession with implications for the rest of us. bis central bankers ’ speeches the banking sector and the inter - bank market : the banking sectors in the peripheral countries of the euro zone carry a large number of potentially bad assets on their balance sheets. banks had stopped trusting each other leading to a fairly dysfunctional interbank market. there is clearly a clean up to be made. what is not clear is how much of it has taken place. the ecb had to step in to get the inter - bank market going again with two facilities. initial indications are that the intervention has worked, at least for now. the markets have reacted positively to this. the libor - ios spread in the euro zone, a key indicator of liquidity conditions in the inter - bank market, has declined from its highs in the last quarter of 2011. the question that faces policy makers is whether the liquidity that has been injected has enabled credit to flow into the real sector of the economy. initial indications seem to suggest that this is not yet the case. bank lending to the private sector in the euro zone barely grew in january and february. governments seem to have been big beneficiaries from these liquidity operations. data from the ecb show that banks ’ lending to governments grew at 6 per cent in february. it shows acceleration from the 4. 6 per cent growth in january. portuguese banks increased their bank holding of euro area government debt by 4. 24 billion euro, greek banks by 4. 12 billion euro while italian banks increased their holding by 23 billion euro in february. what we observe is that it would take sometime before these liquidity injections start to flow to the real sector. how did we fare and / or respond to the crisis? how does this affect us as african economies, what are the channels through which it affects us? given the unfolding of the shocks hitting the african economies, the monetary and fiscal policy responses were largely reactive. the main forward - looking macroeconomic policy setting and decisions were made some years earlier, and enabled a sustained moderation in the economic effects of the crisis. like many other emerging market economies, capital inflows and upward pressure on the exchange rates played a complica

viable financial system. on the other hand, investments imply a long - term outlook, whereas high and volatile inflation or fragile financial sector hampers long - term planning. moreover, the recent global crisis has shown that it is far cheaper to prevent financial instability than to rescue financial institutions in distress. financial crises are even costlier in emerging economies than in industrialized countries, as their ability to bear such costs is severely constrained by spillovers between the banking system and sovereigns and the related vicious circle of escalating risk premia. bis central bankers ’ speeches the crisis has also revealed that effective policy remedies have a transnational perspective. in the european union the idea of a banking union emerged as a solution to break the above - mentioned vicious circle, thus putting a stop to financial fragmentation and helping restore the normal capital flow from the core eu countries to the periphery. in addition, the banking union has the merit of removing the contradiction between the pan - european nature of banking activity and keeping banking supervisory and resolution tasks at the national level. in this context, romania ’ s membership in the banking union comes as a natural choice, given that euro area banks hold three fourths of the total assets of the romanian banking system and two thirds of its capital. as was the case with eu membership, the national interest may be better served in the banking sector by relinquishing some of the national policy prerogatives. in the context of such a high financial integration, preserving the banking supervisory powers at national level would only entail suboptimal results, due to the limited access to information on parent banks and the lack of a cross - border perspective. furthermore, romania ’ s membership in the banking union would ensure the country has an active voice in the decision - making process ; as such decisions would affect it anyway, regardless of its membership status. i will end here my brief comment. once again, we take pride in hosting what will be a substantial dialogue about the role romania will take within the transatlantic renaissance as a faithful partner and ambitious player. i wish you fruitful discussions and to enjoy the leadership awards and gala dinner tonight, hosted in the beautiful marble hall of the old palace of the national bank of romania. built in the late half of the 19th century, following the french architectural style, it has harbored the central bank from the moment it was founded. the national bank of romania is the 16th oldest central bank in the world, established 33 years before the federal reserve. i