there were frequent instances of extremely high inflation. in this group, in the period 1998 - 2007, the average annual inflation rate ranged from 2. 1 % in macedonia to 31. 1 % in serbia ). 7 such movements caused appreciation of the real exchange rate, which was especially emphasized in the new member states. thus in the period 19942006, the cumulative appreciation of the real effective exchange rate ranged from 8 % in slovenia to 105. 9 % in lithuania. 8 economic theory offers arguments that real exchange rate appreciation is not dangerous as long as it reflects changes in the equilibrium real exchange rate. however, policy makers in these countries, especially in the recent years, are not really comforted by these theoretical discussions which consider that real appreciation is only movement to equilibrium. what they are seeing in their countries are common signs of overheating of the economy and loss of competitiveness, which deepens the external imbalances. in the beginning of transition, current account deficits were understandable and not too much cause for concern, as these countries were importing technology and previously unavailable goods. however, the size of the deficits in the last several years exceeds the level that is usually deemed sustainable. thus, the current account deficit in the new member states in the period 1996 - 2005 ranged from 5 % to 7. 7 % of gdp, but in the last two years it has been reaching 10. 1 % and 11. 3 % of gdp. the average current account deficit in the seeu countries in the same period is even higher, and it is estimated that in 2007 it will reach 16. 3 %. 9 even though deficits are projected to fall in some of the countries, in general they remain a cause for concern in most of them. besides the trade deficit which, source : imf world economic outlook database, april 2008. source : eurostat. for the seeu countries data are available only on croatia and macedonia, from the imf international financial statistics. cumulatively, in this period in croatia there was real appreciation of 9. 1 %, while in macedonia there was real depreciation of 18. 2 %. source : ebrd transition report 2007 : november update and nbrm calculations. data for 2007 are estimates. due to lower competitiveness and higher consumption, is one of the main causes for the current account deficits, some of these countries are also experiencing deficits in the income balance, which mainly reflects repatriation of profits from foreign

petar goshev : some lessons from the crisis opening address by mr petar goshev, governor of the national bank of the republic of macedonia, at the 23rd annual conference of the group of banking supervisors from central and eastern europe, ohrid, 15 june 2010. * * * ladies and gentlemen, dear participants, it is an honor for me to share these moments with you exchanging thoughts about, today, the most important questions in the domain of financial intermediation. it is my special pleasure that my address will open the 23rd annual conference of the group of banking supervisors from central and eastern europe. there is no doubt that the key words for every supervisory body are liquidity and solvency, as quantities and qualities which are permanently testing the resilience of the banking system in its functioning. therefore, the standards for liquidity and solvency are constantly being checked from two key aspects : ( 1 ) whether, amid various adverse shocks, they are set to maintain satisfactory resilience of the banking system and ( 2 ) whether the points of calibration of these key categories at the same time enable efficient, rational financial intermediation. the financial crisis that began in august 2007 clearly shocked the world with its sharpness and, now we can say, its length. liquidity vanished, many institutions turned insolvent, financial intermediation as the key link in the economic reproduction chain in a lot of places in the world, especially in the developed countries, at certain moments, almost entirely collapsed. everything was put in question : the current economic theories ; monetary and fiscal policies ; micro and macroprudential policies ; the whole financial regulation. suddenly, no one was satisfied with the global financial framework. a gallop was started for its reexamining. the fear from recurrence of the crisis and its possible deepening, for almost three years has been keeping the eyes of the creators of the economic and financial policies wide open. why did this happen to us? a lot has been written in search for the causes of the crisis, and a lot more will be examined and written. one part of the relevant experts say : the so - called “ great moderation ” period in the gdp and inflation fluctuations was the reason, for which a wrong sense of comfort and illusion was settled, that the crisis period is behind us. some relevant economic minds convinced us in that. paul krugman, in “ the return of depression economics ” ( 2008 ) reminds us