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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 16: Fiscal policy challenges of EU accession for the Baltics and Central Europe

George Kopits and István P. Székely


George Kopits and István P. Székely1 INTRODUCTION Fiscal policy issues occupy centre stage in the accession to the European Union (EU). The main issues encompass: convergence to macro-fiscal reference values; fiscal costs of compliance with the regulatory framework; and limited access to net transfers from the EU budget. For each candidate country, these issues must be examined from the perspective of its current fiscal position. From the outset of the present EU enlargement process, new member states were envisaged to be approaching the criteria for participation in the economic and monetary union (EMU), pursuant to the Treaty of Maastricht.2 Specifically, at the time of accession, the applicants are expected to adopt the acquis communautaire and to adhere to relevant provisions of the Stability and Growth Pact (SGP).3 On the fiscal front, EMU prohibits direct central bank financing of public sector deficits and privileged access to financial institutions, and requires approximation of the fiscal reference values (that is, limits) on the general government deficit and gross debt, set at 3 per cent and 60 per cent of GDP, respectively. The SGP further prescribes a medium-term budgetary position of close to balance or surplus, and in the euro area, it imposes financial penalties for non-compliance with the deficit reference value. In addition, the accession countries are expected to meet uniform EUwide regulations, for the most part incorporated in the Single European Act (also called single-market regulations). Accordingly, the accession countries will be required to...

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