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Post-Crisis Growth and Integration in Europe

Post-Crisis Growth and Integration in Europe

Catching-up Strategies in CESEE Economies

Edited by Ewald Nowotny, Peter Mooslechner and Doris Ritzberger-Grünwald

Against the backdrop of the financial crisis that unfolded in 2008, this book deals with policy challenges going forward, focusing in particular on the ongoing catching-up process in Central, Eastern and South-Eastern European countries.

Chapter 20: Financing for Growth in CESEE

Joachim F Nagel and Corinna Knobloch

Subjects: economics and finance, financial economics and regulation


Joachim Nagel and Corinna Knobloch INTRODUCTION A couple of years after emerging markets were hit by the financial crisis in 2008 seems the right time to discuss ‘Catching-up Strategies in CESEE Economies’. It is the right time because good policies have to be forward-looking. Although we are still heavily engaged in the challenges of surmounting the financial crisis, new business opportunities will emerge as soon as these problems are overcome. Therefore we should, even at this early stage, raise the issue of what Eastern Europe needs to do to reap the benefits of its underlying growth potential in the years to come. In this chapter, we will look into the issue of growth financing in CESEE countries after the crisis. We will focus on the following issues. First, we will briefly analyse the imbalances inherent in pre-crisis growth financing in CESEE that led to the unprecedented contagion in the region during the global financial crisis. Second, we will elaborate on the need to rethink the hitherto prevailing model of growth financing. Third, we will raise some important issues and questions with regard to the elements needed to ensure the future financing of sustainable growth and the challenges this entails. PRE-CRISIS GROWTH FINANCING MODEL On the first issue, the pre-crisis growth financing model, we would like to draw attention to the relationship between massive capital inflows and the build-up of internal imbalances in emerging Europe. Growth during the (post-)transition period was mainly financed by large capital inflows. A significant wage...

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