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European Economic Integration and South-East Europe

European Economic Integration and South-East Europe

Challenges and Prospects

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

With both transition dynamics and the EU integration process having shifted to the south-east of Europe, a region fairly marginalized in the literature, this book fills a gap by taking stock of where South-East Europe’s economies and institutions stood in 2004. The authors evaluate the potential for investment and growth within the South-East European region, including the role of trade and FDI, and discuss the challenges associated with unemployment, poverty and ‘brain drain’. The book also provides insights into the particular monetary and exchange rate policies applied, including cases of ‘euroization’, and finally makes an assessment, against this background, of the European perspective of the countries of South-East Europe.

Chapter 10: Choice of exchange rate regime: implications for South-East Europe

Julius Horvath

Subjects: economics and finance, regional economics, urban and regional studies, regional economics


Julius Horvath 1. INTRODUCTION This contribution discusses the choice of exchange rate regimes by the countries of Southern and Eastern Europe, that is Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Macedonia, Romania, and Serbia and Montenegro. The chapter is structured as follows. Section 2 sketches – in a historical perspective – specific factors of development in South-East Europe. Section 3 evaluates recent positive developments. Section 4 reviews the literature on the exchange rate regime choice, while Section 5 connects exchange rate regimes with growth performance. Section 6 discusses the experience of Central European countries. Finally, Section 7 derives some tentative suggestions for South-East Europe. 2. SOME SPECIFICS OF SOUTH-EAST EUROPE First, from a historical perspective, the area of South-East Europe has quite often been a source of political tensions. These tensions, together with other factors, typically had a negative impact on growth and development, and on different occasions led to currency and price vulnerability and to periods of high inflation and currency depreciation. It is an open question to what extent this political economy argument has implications for current policies concerning the exchange rate regime choice. Second, South-East Europe has long been one of the most underdeveloped areas in Europe. In the last 200 years or so, the countries of South-East Europe stayed on the periphery of European growth and off the convergence paths that would have brought them closer to the more developed areas of Europe. Bairoch (1976) and Berend and Ranki (1982) document that the gap between South-East...

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