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Structural Challenges for Europe

Edited by Gertrude Tumpel-Gugerell and Peter Mooslechner

The main thrust of the book is that the sharing of mutual experiences is important for generating an acceptable policy mix, both at EU and national levels. The contributors highlight key financial issues, including the role of FDI and of foreign banks in the still ‘under-banked’ acceding countries, the re-launch of social security systems and the fiscal challenges of financing the catch-up process. They also examine the ongoing EU debate surrounding the application of the Stability and Growth Pact in Central and Eastern European Countries (CEECs) and go on to explore the contrasting evidence that some CEECs have shown more extensive privatisation efforts than some EU countries.
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Chapter 9: Financing of enlargement and catching up

Ewald Nowotny


Ewald Nowotny CONTINUING – BUT SLOW – CONVERGENCE In the Central and Eastern European (CEE) accession countries, GDP per capita – measured at purchasing power parity (PPP) rather than market exchange rates – went up from an average of about EUR 6200 in 1994 to about EUR 9100 in 2001, implying an annual average growth rate of 5.75 per cent. During the same period the PPP GDP per capita in the EU rose from an average of EUR 17 200 to EUR 23 400 (see Figure 9.1). As a result, the income of the accession countries rose from 36 per cent of the EU average in 1995 to almost 40 per cent in 2001. THE PUBLIC SECTOR As Figure 9.2 indicates, however, developments have been quite uneven across countries. Fiscal deficits widened in the three largest economies, that is Poland, the Czech Republic and Hungary, and in the Slovak Republic. The deterioration ranged from 2.25 per cent of GDP in the Czech Republic to 0.75 per cent in the Slovak Republic, resulting in a fiscal deficit of around 5.5 per cent of GDP in both countries. The other six countries – Bulgaria, Estonia, Latvia, Lithuania, Romania and Slovenia – made progress towards fiscal consolidation and have, with the exception of Romania, small deficits or even fiscal surpluses (Bulgaria and Estonia). It is probably worth noting that, except for Slovenia, all countries with an improved fiscal position have been implementing macroeconomic stabilization and structural adjustment policies in the framework of IMF stand-by arrangements. Furthermore,...

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