Perspectives for CESEE Countries
Edited by Ewald Nowotny, Doris Ritzberger-Grünwald and Helene Schuberth
Chapter 1: European investment to support CESEE and euro area countries
What do we mean by ‘rebalancing’, the pivotal term of this book? Obviously, the term signifies a readjustment from a state of imbalance – an economic imbalance in our case. Typically, economists distinguish between external and internal imbalances. By external imbalances, they usually mean disequilibria (mostly deficits) in the current account which, if protracted, might lead to an unsustainable net international investment position. The underlying reason for a current account deficit can differ from case to case: it can be trade-induced via export weaknesses, indicating a lack of competitiveness; it could also reflect strong import demand due to unsustainably high growth. This leads us directly to internal imbalances, such as accumulated private and public debt, asset price bubbles, unemployment or excessive inflation (or deflation). One could also add sectoral or distributional imbalances contributing to uneven growth. Internal and external imbalances are often interlinked, but their interrelation is not always clear-cut. This chapter is structured as follows: section 1.1 assesses the challenges to the convergence process in Europe revealed by the crisis; section 1.2 elaborates on the investment gap and its solution; section 1.3 takes a historical perspective on rebalancing issues; before the final session summarizes and concludes with a general remark on policy-making.