sector. in times of economic crisis, continued access to finance for small businesses is essential. they are at the heart of the economy. development finance must operate counter cyclically, which means fighting the credit crunch around the globe, in particular in emerging europe including southeast europe, and that is exactly what efse does. but apart from this financial dimension, efse is still taking on other roles in contributing to financial sector development in southeast europe : we appreciate efse ’ s role as a responsible investor. as such, efse promotes responsible lending practices in the region, refraining from promoting consumer lending or speculative activities. why is this crucial for financial sector development? the financial crisis was in part caused by irresponsible lending practices, in particular by credit technologies employed in the subprime market, the very origin of the current crisis. against this background, there is indeed the valuable lesson to be learnt that responsible finance is a must to ensure a sound financial system. last but not least, i am proud to say that i, as well as my other colleagues from the central banks of the efse partner countries, are all members of the efse advisory group. as such, we are involved in efse ’ s work. but it is more than a sole advisory board, serving efse as an information source to stay abreast of financial sector developments in the region from a policy maker ’ s perspective. it provides a platform for regional exchange on financial sector issues. thus, it is a crucial vehicle to strengthen integration and cooperation in southeast europe, which in these current times of turmoil has never been so important. no southeast european country has the resources or the means to make it out for the current crisis alone. thank you for your attention.

- 6 - 6 sources : ceic ; rba ; thomson reuters rather than run through more of the recent economic data, i would like to touch on three broad issues that are likely to play a major role in shaping how the world economy evolves over the next few years. the first of these is the need for the advanced economies to consolidate their public finances. the second is the realignment of capital flows, given the likelihood of an extended period of low interest rates in the advanced economies. and the third is the challenge of increasing domestic demand in asia. ( i ) public finances of these three issues, the one that has attracted the most attention recently is public finances. this is partly the result of what has been going on in greece but, more broadly, it reflects the difficult fiscal positions in which many advanced economies currently find themselves. in the united states, the federal budget deficit for 2009 was around 10 per cent of gdp. in japan, the deficit was almost as large, and for the euro area as a whole it was around 6 per cent, with some euro area countries having much larger deficits than this average. furthermore, these large deficits come after three decades over which the ratio of public debt to gdp for the g7 economies as a whole trended higher ( graph 4 ). they also come at a time when there will be significant medium - term budget pressures due to the ageing of the population. graph 4 g7 – net public debt per cent of gdp % % source : imf over coming years, many governments will need to take significant steps to improve their public finances. the flexibility that they have to determine the timing and size of these steps is limited by the fact that they went into the current downturn with already high levels of debt. as a result of the poor starting points, many are now treading a fairly narrow path. on the one hand, tightening fiscal policy in the very near term risks derailing the recovery, while not doing so risks a damaging loss of confidence. how these risks are managed is likely to have a major effect on how the world economy evolves over the next few years. presumably, what is required is for the affected countries to have credible medium - term fiscal consolidation strategies. while this is easier to say than to do, ensuring the confidence of investors is an important ingredient if the recovery is to be sustained. ( ii ) capital flows this brings me to the second, but related, issue – that of capital flows. most