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

lesetja kganyago : the impact of the eurozone financial crisis on african economies speech by mr lesetja kganyago, deputy governor of the south african reserve bank, to the nepad ( the new partnership for africa ’ s development ) business foundation, sandton, 17 april 2012. * * * programme director chair of nedbank, dr ruel khoza ladies and gentlemen all protocols observed it is now generally accepted that the global financial crisis showed its first signs in the sub - prime market in usa. it is thus tempting to think that it has got nothing to do with us. however we do know that in a world where the financial systems and the economies are closely integrated, this would have been cold comfort. the slowly unfolding financial crisis in the united states and the eventual shock of the lehman bankruptcy in october 2008 hit an already weakening economy. as credit was restricted globally and trade volumes collapsed around the world, the value of real exports of goods and services declined. what i would like to do today is to address three questions that would hopefully spark a discussion during the panel discussion : what do we know about the euro crisis? what are the channels through which it affects african economies? how did african economies fare and / or respond during the crisis? what do we know about the euro crisis? fiscal situation : the fiscal metrics of many euro area countries have been deteriorating in the past five years. this culminated in the bailing out of ireland and a troika programme for greece, including a very significant write - off. most euro area countries have debt to gdp ratios in excess of 60 % and this includes even the stronger anchor countries such as germany and france. in the case of greece ; ireland ; italy ; portugal and spain, the fiscal situation also got reflected in higher borrowing costs that made any fiscal stimulus a non - option for policy makers. recent budget data suggest that the weaker countries in the euro zone will overshoot their official fiscal consolidation targets. these countries are caught between a rock and a hard place. save for austerity, fiscal consolidation can only come from faster economic growth. the growth situation : growth outcomes have been disappointing in the euro area, to say the least. recent data suggest that there could have been further contraction in the first quarter of this year while global growth has not been as supportive to the euro economy. there is also a policy dilemma of balancing fiscal consolidation and providing support to the economy to continue growing. with financial markets reluctant to lend