The Role of CESEE Countries
Edited by Marek Belka, Ewald Nowotny, Pawel Samecki and Doris Ritzberger-Grünwald
Chapter 7: EU economic governance: euro area periphery lessons for Central and Eastern European countries
Before the crisis that evolved in 2008 and during its aftermath, there were many similarities between the macroeconomic developments of euro area periphery and Central and Eastern European (CEE) EU member states. Before the crisis, almost all countries in both regions experienced rapid economic growth, which to a large extent was fuelled by capital inflows (Figure 7.1). Capital inflows resulted in macroeconomic imbalances, such as too-fast domestic credit growth, large current account deficits and the accumulation of large foreign liabilities (Darvas and Szapáry 2010). There were also a number of similarities between the two regions during the global and euro area crises and their aftermath. A notable development was the switch from large current account deficits to surpluses, which were related to a slowdown or even reversal of private capital flows, partly fuelled by the deleveraging of foreign-owned banks. During 2009–10, the initial adjustment was more gradual in the euro area periphery due to European Central Bank (ECB) liquidity provision to banks, and starting from 2010, European Union (EU) and International Monetary Fund (IMF) financial assistance to Greece, Ireland, Portugal and Spain. These official inflows allowed a smoother adjustment on the external position than that which occurred in most CEE countries, especially in the Baltics. CEE countries did not benefit from the support of the ECB (Darvas 2009), while official flows in the framework of the financial assistance to Hungary, Latvia and Romania were small compared to the receding private capital flows. Yet capital flow trends remained broadly similar in both country groups (Figure 7.1).
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