The answer to the above question lies in the prudential dimension. If the financial intermediaries of the EMEs were able to internalize the macroeconomic risks that arise from the current low interest rate environment, there would be no need for a policy apart from market based return equalization. Since this cannot happen by itself due to agency problems, there is a room for macroprudential policy. Turkey, following the second approach, has been using mainly macroprudential measures along with a relatively low and yet quite flexible interest rate policy in face of volatile short term capital flows.2 The Central Bank and the other government agencies responsible for financial stability, developed new tools and introduced new policies to avoid excessive deviations of the credit growth rates and the exchange rates from economic fundamentals. Examples of macroprudential policies used in Turkey are loan to value restrictions, high risk weights and provisioning requirements on credit with negative externalities, maturity based reserve requirements and leverage based reserve requirements. These policies already helped to start a rebalancing process for domestic and external demand during the rapid post Lehman recovery and the more recent European sovereign debt crisis.3 Distinguished Guests, The financial stability, when lost, has deep and long-term impacts on both employment and growth.4 The cost of preventing a financial crisis is much lower than the cost of living it. The recent developments have reminded us this economic dictum once again. The primary objective of the Central Bank of the Republic of Turkey is to achieve and maintain price stability.
Our export to Austria was 1.1 billion USD and import from Austria was 1.6 billion USD at the end of 2012. These numbers are quite small compared to the potential. On the financing side, however, there is good news. Austria is the leading country in foreign direct investment flows to Turkey for the period after 2008 with 7 billion USD in total. Direct investments are mainly focused on the energy sector. There are currently 643 Austrian firms operating in Turkey. Distinguished Guests, The European Union is a success story regarding peace and cooperation among nations with rather bitter historical memories. No wonder the European Union obtained the Nobel Peace Prize in year 2012. Despite all the debates and a high degree of uncertainty regarding the new economic governance structure in the EU, I sincerely believe Turkey’s closer cooperation with Austria will bring invaluable outcomes in line with the European spirit. To conclude, I would like to express my view that the future of the commercial, financial and economic relations between Austria and Turkey looks more promising than ever. Today’s joint meeting and the opening ceremony of the Exhibition “Contemporary Turkish Painting and Printmaking in the Republican Era” are small, symbolic, yet quite significant steps to mark the start of this new and healthy trend. Thank you very much for your attention. BIS central bankers’ speeches  3