christian noyer : some thoughts on the crisis address by mr christian noyer, governor of the bank of france, to the congress of the national federation of the credit agricole, nice, 21 october 2008. * * * mr chairman, ladies and gentlemen, it is a great pleasure for me to participate in the congress of the national federation of the credit agricole. i am happy to be here, surrounded by colleagues and friends in the unique atmosphere that characterises your meetings. nowhere else is there such a blend of conviviality and the greatest professionalism. that is why i would like to take this opportunity to present to you some thoughts on the current situation. for over a year, the global financial system has been in crisis. the crisis is not over. but, as you know, everything is being done to contain its effects. and central banks are at the very forefront of this combat. it is still too early to draw all the lessons from these events. it is however vital to start reflecting on the experience of the last few months. even more in periods of tension than in normal times, action and reflection should reinforce one another. it is at the very moment of managing the current crisis that we lay the foundations for the future financial system. i am very happy to be able to share a few thoughts with you and in your company. i propose to explore four avenues : • the nature of the financial crisis • the policies implemented to address it • the macroeconomic outlook • the outlook for financial regulation the nature of the crisis the crisis first emerged as a liquidity crisis. the first symptoms appeared as pressures on liquidity, which we can trace back to the beginning of august 2007 when serious disruptions appeared on the interbank market. more than a year later, these tensions are still present on money markets. this is demonstrated by the abnormal level of spreads, the shortening of maturities, and the contraction, or even closure, of some market segments. through contagion, these tensions are also affecting non - financial corporations and the financing of the economy : in the united states for example, even more than in europe, issuing of commercial paper remains very difficult. the crisis also emerged as a crisis of securitisation. securitisation is a very old technique, which has been successfully used for 30 years for refinancing automobile loans, consumer credit, and ( yes! ) housing loans. for the past 10 years, however, it has

opinion bordering on an intellectual vogue has prevailed, with a view that any banking crisis is bound to have far - reaching and long - lasting consequences. along these lines, the optimists refer to the swedish experience in the 1980s, which was marked by almost three years without economic growth, and the pessimists allude to japan's " lost decade " following its banking crisis. however, a comparison is misleading. the situation today is profoundly different. first, as i have said, our banks, and particularly french banks, are financially sound. furthermore, the reaction in terms of economic policy has been particularly rapid and vigorous. i would like to reiterate : • that all european banks now have unlimited access to short - term liquidity, denominated in both euro and dollars, at a fixed rate ; • that in all countries there are guarantee mechanisms enabling banks to ensure their financing and therefore to maintain their credit activities ; • that banking systems are all being recapitalised at equivalent or higher levels than those prevailing before the crisis ; • and lastly, that macroeconomic policy instruments are still available and could be used if economic activity were to decline durably. moreover, for the past two months we have witnessed a reversal of the oil and food shock which strongly penalised economic growth during the first half of the year. prices are now falling. if this trend continues, or even if it just stabilises, we can expect a gradual but marked slowdown in inflation. this should spontaneously give households extra purchasing power, contributing to a possible pick up in consumption. together, these developments could stabilise the economy and allow a recovery in economic growth during 2009. we cannot, of course, predict a precise date or forecast the extent of this recovery. however, in my opinion, the prospect of a significant recovery in economic growth in 2009 is not being sufficiently taken into account, either by analysts or markets. the latest forecasts by the imf envisage for the euro zone, and even more for france, a rebound in growth in the second half of 2009 [ respectively + 0. 6 % and + 0. 8 % in 2009q4 / 2008q4 ]. as regards inflation in 2009, the imf is forecasting 1. 9 % and 1. 6 % for the euro area and france respectively. this is not the dark scenario that some people are predicting. moreover, the imf forecasts are based on the rather pessimistic hypothesis