My special welcome goes to the IMF's Managing Director Kristalina Georgieva - it is indeed our great privilege to have you on the conference and to host you for the first time here in Dubrovnik. I also thank our Prime Minister Plenkovi for being with us today to open this event and to set the stage for fruitful discussions that will follow. Finally, I want to thank all of you for coming here to enrich the conference by sharing your great knowledge and experience with us. Last time we gathered here in Dubrovnik, on a similar occasion, was in 2019. We had to skip 2021, for the known reason, namely one of the shocks that hit us in this short period of time – the pandemic. I'm happy that we are back here in a better shape than in spring of 2020 most believed we would be at this moment in time. And while the main objective of the conference has not changed much – that is to discuss policies needed to enable sustainable growth and prosperity in Central Eastern and Southeastern Europe – the underlying circumstances at that time were so much different than today. From an economist's perspective, it seems that 2019 was not years ago, but decades ago.
Commercial banks operating in the eurozone are willing to borrow around 250 billions Euro from the European Central Bank paying the key policy rate and at the end of the same day to deposit the same money at the European Central Bank being paid the discount rate, which is 1 percentage point less, but the spread between the short-term money market rates and the key policy rate still persists. Magnitude of the commercial banks’ position compared with the European Central Bank shows how huge the uncertainty has been. Only restoration of confidence about solvency and financial stability among commercial banks can most probably solve this problem. The third frontier we are concerned about is connected to the emergency liquidity assistance. Under standard circumstances central banks provide liquidity to commercial banks only. In case of an urgent need a commercial bank may ask the central bank for an emergency credit. What we see in the United States today is an attempt to extend this emergency assistance beyond the banking system and provide liquidity against collateral to non-banking firms. On one hand, one understands the effort of the Federal Reserve to provide funding also to the non-banking sector of the economy when the traditional channels are freezing. On the other hand, the Federal Reserve is effectively printing money against collateral with uncertain value and there are concerns when and how the Federal Reserve will close and null these operations to avoid potential inflationary consequences.