The Challenge of Economic Rebalancing in Europe
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The Challenge of Economic Rebalancing in Europe

Perspectives for CESEE Countries

Edited by Ewald Nowotny, Doris Ritzberger-Grünwald and Helene Schuberth

In the long aftermath of the acute global financial crisis of 2008/09, “rebalancing” the economy with new sources of growth and productivity remains a persistent necessity. This book addresses the resulting trade-offs and challenges. These needs, and the corresponding policy challenges, are especially prevalent in Europe, in particular Central, Eastern and South-Eastern Europe. On this issue, this book contributes lessons learned from earlier balance sheet recessions. It also addresses the often overlooked link between macroeconomic imbalances and economic inequality. Further contributions focus on the interaction between monetary policy and financial stability, adding a regional perspective to these important issues.
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Chapter 2: The rebalancing challenge in Europe

J. Bradford DeLong


The purpose of this chapter is – starting from first principles – to provide a large-scale bird’s-eye overview of what is to come in this book. Readers will find chapters on monetary policy, balance sheet adjustment and growth, inequality and its role in generating internal macroeconomic imbalances, external macroeconomic rebalancing, and banking sector regulation. They all presuppose that Europe, and within it the regions of Central, Eastern and South-Eastern Europe (CESEE) that we focus on here, have problems that for their solution require more than just higher aggregate demand in the short term. Proper solutions require large-scale sectoral rebalancing. And that sectoral rebalancing needs to be rapid. Why? Because these economies will not grow smoothly without deep structural reforms; these reforms need to be not just at the bottom but at the top, and reforms of institutions, governance structures, and regulatory practices and mandates need to be carried out as well. Note that the need, while urgent in Central Europe, Eastern Europe and South-Eastern Europe, is not necessarily more urgent here than in the other regions of Europe.

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