Financial Policy Challenges on the Horizon

Abstract

This chapter examines the financial policy challenges facing South East Europe (SEE) countries in the near term focusing on the possible impact of changes to the regulatory, supervisory, and market structures especially in the euro area (e.g., banking union, and deleveraging) on SEE economies. The implementation of the Basel III supervisory standards will likely increase bank credit spreads and reduce bank lending, particularly for trade finance and long-term investment. Of special interest to SEE economies is the evolving EU financial architecture. Given open capital markets, the effectiveness of new regulations will often be dependent upon help from foreign (EU) supervisors, or on the use of capital flow measures by SEE authorities.