need tight and credible fiscal policy. fiscal consolidation has to rely on long lasting structural measures on the expenditure side. to enhance long term growth potential structural weaknesses has to be addressed as well : – tax and social transfer reform, which support increasing labor force participation, – improvement of the quality of primary and secondary education to strength employability, – strengthening technological transfer among multinational and small / medium size businesses, to eliminate the dual structure of our economy. stability of the regulatory environment, strengthening the rule of law, respect of contracts and market based coordination. anchored inflation expectations. keep financial intermediation active and motivated to provide appropriate level of financing future business activities.

impossible to implement fiscal stimulus measures. on the contrary, in order to secure long term sustainability, a significant fiscal adjustment took place, which was necessarily pro - cyclical in the short run. the fiscal adjustment also contributed to the dramatic adjustment that took place within the private sector. households increased their net savings, while firms cut down on their investments, which resulted in a strong trade balance surplus, and a net financing capacity towards the rest of the world. the financial gap was closed. in less than 18 month the external finance position improved by more than 8 %. it must be stressed, that when the crisis hit, countries relying heavily on external funding to finance their growth suffered a more severe recession in 2009, in contrast to those where growth was financed by domestic savings to a greater degree. as it appears unlikely that investors ’ risk appetite will return to pre - crisis levels for quite some time, over the medium term, the process of real - convergence cannot proceed at the expense of a significant deterioration in external balance. we need a new growth model. we have to rely mostly on domestic savings. neither monetary policy was in a position to act strongly against the sharp downturn, due to the high expected risk premium and the currency mismatch problem. however, from the outset the central bank introduced liquidity support measures, and after risk appetite seemed to be stabilizing, we begun to lower or policy rates gradually, keeping in mind that we must not let sudden movements in risk appetite to translate into potentially destabilising balance sheet effects. how can we address these vulnerabilities, that are a threat in themselves but also constrain the effectiveness of economic policies so much? there are no quick fixes here. while the pre - crisis level of indebtedness of households was not particularly high by international standards, its currency composition became very risky. the debt burden increased significantly due to the weakening of the forint - euro exchange rate and the strengthening of the swiss franc. the currency mismatch on private sector balance sheets took years to build up and cannot be undone easily. there is no simple way of converting foreign currency debt to domestic currency debt. if government takes over, it would only mean a transfer of risks, but not elimination. if the conversion would take place directly and en masse on the foreign exchange market, this would almost certainly imply large exchange rate depreciation and possibly other unintended consequences. moreover it is hard to imagine indebted households that