*Presentation by Per Callesen, May 21, 2010 “ Global Financial Crisis: Lessons for the Stability of the Financial Sector” Conference, Warsaw. Organized by the BGF Guarantee Fund of Poland *Views and assessments are made on a purely personal basis

1. Policy implications of the sovereign debt crisis crisis management benchmarked against the MoU and its principles 3. Revisiting controversial issues in preparing for the 2008 MoU 4. Broader remarks on stability in the financial system

 No financial stability with disorderly public finances.  Sustainable public finances are mainly a national interest and obligation. But much needs to be done at the European level as well:  Re-coupling fiscal policy and it’s underlying decisions. Stronger role of the ECOFIN.  Stronger differentiation of fiscal policy advice.  Take current account imbalances and inflation into account in fiscal surveillance.  Stronger political follow up with peer pressure, political and economic sanctions.

The crisis unfolded very differently from anticipated in the MoU, and so did intervention:  Case-by-case management given up early. Fairly good EU-cooperation on systemic approach, after a difficult start.  Protection went far beyond expectation.  Mixed experience of cooperation for intervention in specific institutions.  Competition rules important, but difficult.  Contagion became an overarching concern across the board.

AssessmentPrimary PrincipleSecondary Principle 1. Yes, butProtect stability in all countriesNot prevent bank failures 2. NoPrimacy to private sector solutionsCreditors to expect losses 3. Mainly YesPublic money, never taken for grantedOnly used strictly 4. Yes and NoCommon concerns for all MSCoop. in normal times 5. Mainly YesArrangements & tools designed flexiblyShared assessments 6. YesConsistent with supervision & prevention 7. Probably NoFull participation ensured for affected MS 8. Mainly YesPreserve level playing field/state aid rules 9. YesGlobal dimension taken into account

 Moral hazard. The discussion on whether to mention possible public intervention has been fully overtaken by events. But setting the conditions remains as difficult.  Preparing for burden sharing. The mood has shifted towards favoring comprehensive preparation. Possibly also to some degree towards ex ante arrangements.  More decisive approach towards cross- border stability groups

 An effective financial sector is needed to spur private demand  But it has to become stable  Discretion has a limit. Look for automatic stabilizers, like provisioning.  Strong dilemma between need for stronger competition and preserving stability  Don’t forget that bad macroeconomic policies in good times played a major part  Macroeconomic policy mistakes are very costly