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The conference of ‘Financial Globalization: Shifting Balances’, sponsored by Banco de España and the World Bank, with the academic support of CREI, took place at Banco de España, Madrid, on July 1st and 2nd, 2010- The goal of the conference has been to bring together academics and policy makers to discuss the links between the recent crisis and financial globalization, broadly focusing on two main themes:

1. The two-way relationship between global imbalances and the crisis.
2. The impact of the crisis on the process of financial globalization.

Among ideas arising during the conference we can highlight the following:

• Empirical evidence suggests that financial crises can generate important increases in public debt and enhance the risk of a sovereign debt crisis. However, sovereign debt crises can also generate financial stability problems and affect credit.
• The debate about the origin and implications of global imbalances is still open after the global financial and economic crisis:
  • Global imbalances could reflect growth patterns that are not sustainable in the medium term and that pose important risks.
  • Global imbalances could be the consequence of the lack of safe haven assets in emerging markets. This would explain the high foreign saving in these countries and the unexpected direction of international financial flows –from emerging to developed-.
• The recent crisis has shown the importance of analyzing the international financial links, which are fundamental to understand the crisis transmission channels in an international context:
  • The increasing financial integration has implied a greater international shock transmission. In the recent crisis, capital shortages in global banks lead to cross-country deleveraging and large financial outflows.
  • During financial crises there is a simultaneous retrenchment of financial flows, both inflows and outflows.
  • The analysis of international financial links requires a study of the gross financial positions, and also at a bilateral level.
• Currently, global imbalances are increasing again because part of the related structural problems has not been corrected. Also, the reserve accumulation by emerging economies is starting again after the crisis because it is considered to have important benefits. This policy poses both global and domestic risks.
• The current international monetary system is asymmetric. The US plays a central role because of the main performance of the dollar as a safe haven asset. This is why, during stability periods, the US benefits from a high net return from its debtor position, while during crisis it behaves as insurance, generating "exorbitant" payments.
• Real economic growth in emerging economies has become less dependent on advanced economies, partly due to the growing importance of China. However, financial covements have increased.
• The development of the local currency debt markets, following the last decade trend, can increase the international financial system stability.
• Latin America has resisted the global financial crisis. Currently, it faces the traditional risks associated with the financial flows entry and high growth. In this context, it is important to adopt contracyclical policies in line with the pragmatic and effective recent year’s response.