Ivan Iskrov: Growth and the financial system – lessons from emerging Europe with a focus on Bulgaria Speech by Mr Ivan Iskrov, Governor of the Bulgarian National Bank, at the conference on “Achieving sustainable growth in South East Europe: macroeconomic policies, structural reforms, socio-political support, and a sound financial system”, organised by the Bank of Greece and St Antony’s College (Oxford), Athens, 11 February 2011. *  *  *  Ladies and Gentlemen, It is a pleasure to be here at this conference, organised by the Bank of Greece together with St. Antony’s College, Oxford. Above all, let me thank Governor Provopoulos for the invitation and the opportunity to come here and, together with my distinguished colleagues from South East Europe, to be able to talk before such a reputable audience. As a central banker, certainly the financial industry is of direct interest to me. But although the topic of this panel is “growth and the financial system”, I would also like to go beyond it and touch upon other issues discussed so far today. Politics and politicians do matter The topics of the panels overlap and the four main sessions are arranged in a very logical sequence. I am saying this, because the financial sector does not function in isolation from the rest of the economy and the political stance. A strong financial system cannot co-exist with a fragile economy and political instability (at least not for long). The opposite is also true: weak financial markets and weak institutions hamper the sustainable growth.
At the same time, we can conclude the opposite with regard to the inflation forecasts (OH 2 inflation forecasts 1998-2002), which we have been forced to revise upwards again and again. If we are right that a recovery is now beginning both in Sweden and abroad, we can conclude that the economic downturn was one of the mildest of the post-war period, partly as a result of resolute stabilisation policy. However, the slowdown in Sweden and the rest of the world during 2001 was unexpectedly severe in relation to the forecasts made in 2000. The fact that forecasters miss turning points in the economic cycle is not unique to this particular downturn, but quite a common phenomenon. I will return to the current situation, but first a look back in time. Historical patterns are repeated Is it possible to learn lessons from history? Both yes and no. If one studies economic slowdowns over the past three decades, one can see that they differ considerably both with regard to causes, sequence of events and recovery. There is no simple, cyclical pattern that is automatically repeated. At the same time, it is clear that what we have experienced now has elements in common with 1 previous cycles. In some industrial nations, including the USA, the economic downturns during the 1990s have become milder compared with the downturns during the 1970s and early 1980s. Deep recessions have been unusual and arisen in combination with major structural problems, such as bank crises.