Table of Contents

The Economic Potential of a Larger Europe

The Economic Potential of a Larger Europe

Edited by Klaus Liebscher, Josef Christl, Peter Mooslechner and Doris Ritzberger-Grünwald

The Economic Potential of a Larger Europe gives insights into past, present and future issues related to the ongoing EU enlargement process. Providing a unique forum for debate and a multiplicity of views and experiences from both high-profile academics and those who engage with enlargement on an implementation level, this book covers a wide range of topics that are key to a successful transition and integration process and thus to the provision of a prosperous growth environment within a larger Europe. Special attention is paid to monetary integration, notably entry into ERM II, on which representatives of the national central banks involved present their views.

Chapter 17: Some remarks on good governance and sound finances

Josef Christl

Extract

17. Some remarks on good governance and sound finances Josef Christl1 The Central and Eastern European countries have experienced an impressive transformation of their economic system over the past 15 years. This process has provided substantial opportunities for foreign investors, including Austrian firms. Today, Austrian companies belong to the largest investors in the region in terms of the invested capital stock. In some countries, like Slovenia or Croatia, they even rank first. Over the past 15 years, the acceding countries have also come a long way in reforming their financial systems and improving financial stability. Bank restructuring, recapitalization and privatization have been advanced substantially or even completed. Following the opening up of the sector to foreign ownership, majority foreign-owned banks now account for a predominant share of total bank assets, whereas state ownership of banks has been significantly reduced. Austrian banks as well have invested heavily in the Central and Eastern European – the CEE – region. For example, in the Czech Republic, Slovakia and Croatia, Austrian banks’ market shares reach impressive levels of around 30 per cent of total assets. Altogether, CEE subsidiaries account for around a quarter of consolidated pre-tax profits of Austrian banks, which further stresses the importance of these markets for Austria. What is important is that the structure of the financial sectors of the new member states differs significantly from that observed in the EU. In particular, the degree of financial intermediation remains below EU levels. Additionally, bank lending tends to be overwhelmingly...

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