Catching-up Strategies in CESEE Economies
Edited by Ewald Nowotny, Peter Mooslechner and Doris Ritzberger-Grünwald
Chapter 12: A Policy Recipe for Successful Convergence of CESEE Countries in the Post-crisis World
Júlia Király, Attila Csajbók and Mihály András Kovács1 The financial crisis is not something that will fade away quickly; its effects will most probably stay with us for several years. Our impression is that the crisis clearly changed the rules of the game for emerging countries with the intention to converge to developed countries. This road will be much bumpier compared to what it looked like in the past, therefore it requires a very conscious strategy in policy making. This chapter explores what lies ahead for Central, Eastern and South-Eastern European (CESEE) countries regarding their convergence process in this new post-crisis environment. First, we sketch the new rules of the game in the post-crisis world. Then monetary policy options and macro-prudential challenges in the years ahead will be outlined. Finally, we make a few remarks on euro area accession. Most remarks will be general, that is, valid for all CESEE countries. Others will be more relevant for countries with a high foreign currency debt burden. 1 CRISIS AND CONVERGENCE IN THE CESEE COUNTRIES The financial crisis brought a reassessment of the riskiness of debt financing. Those countries where real convergence was accompanied by current account deficits and excessive debt flows had to face deeper recessions (see Figure 12.1). The reliance of CESEE countries on foreign funding depended on two key elements of the macroeconomic framework: fiscal and exchange rate policies. First, countries with tight fiscal policies and low government debt ratios (for example, the...
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