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Boosting European Competitiveness

Boosting European Competitiveness

The Role of CESEE Countries

Edited by Marek Belka, Ewald Nowotny, Pawel Samecki and Doris Ritzberger-Grünwald

In the global financial crisis, competitiveness gaps between Euro area countries caused additional strain. This book discusses the various dimensions of competitiveness, with a special focus on Central, Eastern and Southeastern Europe. With products becoming ever more technically sophisticated and global interconnectedness on a relentless rise, quality, customer orientation and participation in production networks are as important as relative costs and prices. For Europe to proceed with convergence and to resist global competitive pressures, policies to boost productivity and innovation are therefore vital.

Chapter 3: Correcting external imbalances in the European economy

Michael Landesmann and Doris Hanzl-Weiss

Subjects: economics and finance, financial economics and regulation, international economics, money and banking


This chapter examines current account developments in different country groups amongst the lower- and medium-income European economies (LMIEs) both prior to the crisis and following it. The Baltic countries, the Western Balkan as well as the Southern EU countries (Greece, Portugal and Spain) showed rather dramatic deteriorations in their current accounts prior to the outbreak of the financial crisis in 2008_09, while in the Central and Eastern European countries current account deficits never exploded. What drove current account developments before the crisis, and have external imbalances been sustainably corrected? The authors investigate whether and to what extent adjustments took place in terms of trade performance, real effective exchange rates and components of unit labour costs. Finally, they look at developments of the tradable and non-tradable sectors of the economy and find that ‘structural’ current account problems are grounded in persistent weaknesses of the tradable sector. As such, policy implications would entail that countries which suffer from longer-term structural external imbalances have to strongly focus their policy attention on a recovery of the tradable sector.

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