Nine Lessons to Be Drawn From the Current Financial Crisis

Author:Professor Ph.D. Mugur ISĂRESCU

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Keywords:inflation, financial stability, regulation and supervision, risk management, exit strategies

Abstract:
The presentation below was held on 14 April, 2009 at the Romanian Academy, during the session titled “What lessons can be drawn from the current economic crisis?”, organised by the Economics, Legal and Sociology Department within the Romanian Academy, in cooperation with “Costin C. Kiriţescu” National Institute of Economic Research and the “E.S.E.N. Reflection Group” Romanian National Committee.\r\nThe author outlines nine lessons from the economic and financial crisis: • the low level of inflation is not a sufficient condition for safeguarding financial stability in the long term; • regulation and supervision are trailing behind the markets at certain intervals; • the EU lacks some institutions; • wage incentives in the private sector are not adequately correlated to risk management; • in times of prosperity, people forget about crises and neglect/overlook the creation of crisis management mechanisms; • the IMF role came into the limelight after the institution faced criticism for failing to foresee the Asian crisis; • expansionary measures should be accompanied by exit strategies from the very beginning; • avoidance of macroeconomic imbalances and increased focus on sustainable growth and substantial structural reforms are of key importance; • euro adoption cannot make for adjustment policies.\r\nBy urging stakeholders to draw the all lessons from the current standing of the world economy, the author concludes: “The lessons from financial crisis so far show that the social memory regarding these crises is short and a repeat of certain mistakes should never be ruled out.” \r\n

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