Catching-up Strategies in CESEE Economies
Edited by Ewald Nowotny, Peter Mooslechner and Doris Ritzberger-Grünwald
Chapter 1: Challenges to European Economic Integration
Vítor Constâncio This chapter will focus on the challenges to the process of European economic integration in the aftermath of the global turmoil. The financial crisis has exposed widely held views on large domestic and external imbalances as having several shortcomings, which has led to an overall reassessment of the associated risks. With regard to the process of European economic integration, the financial crisis has undermined the staunch belief in a ‘development model’, whereby low-income countries in Central, Eastern and South-Eastern Europe (CESEE) could achieve rapid growth simply by: (i) engaging in market-oriented reforms; (ii) liberalizing trade; (iii) having access to foreign capital markets via debt flows and foreign direct investment (FDI); and (iv) allowing the entry of foreign banks. The associated growing imbalances were judged as temporary phenomena associated with the catching-up process. I will argue in the following that this development model should not be abandoned, but refined, as the push towards market reform has engendered significant benefits. However, the global crisis has shown that economic convergence in Europe should not be viewed as an automatic process. In fact, stability-oriented policies and careful risk management should accompany and support convergence efforts. With this in mind, I will focus on the following three aspects, which highlight the role of policy in ensuring a sustainable development model: 1. 2. a review of the growth experienced in CESEE countries in order to determine if any general lessons can be drawn; the role of the foreign banking sector in CESEE...
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