Edited by Klaus Liebscher, Josef Christl, Peter Mooslechner and Doris Ritzberger-Grünwald
Chapter 17: Assessing the Sustainability of External Positions in New EU Member States
Enrique Alberola1 and José María Serena2 INTRODUCTION 17.1 One of the main economic concerns for new EU member states (NMS) is external imbalances. Large and, in some cases, widening current account deﬁcits that have accompanied these countries on their path of integration with the European Union represent an important source of economic and ﬁnancial vulnerability. Their huge current account deﬁcits imply the need for continued foreign inﬂows to ﬁnance domestic growth, causing the net foreign assets position – a stock variable – of the NMS to worsen as inﬂows accumulate. At the same time, the increasing stock of external liabilities also requires a higher inﬂow of ﬁnancial resources to pay for those liabilities, thus exacerbating the deterioration of the current account. In this chapter, we focus on stocks rather than on ﬂows – that is, on the external positions rather than on the external or current account imbalances that have attracted more attention among policy makers and in academic fora. In Figure 17.1 we observe the parallel – albeit not identical – behaviour of the cumulative current account balances (in terms of GDP) and of the stock of net foreign assets for the two groups of countries generally covered in our analysis for the period 1995–2006, namely the Baltic countries and Bulgaria (denoted by BϩB) and the four largest NMS (the Czech Republic, Hungary, Poland and the Slovak Republic – denoted G-4). This comparison shows that the BϩB reported higher current accounts deﬁcits in the period...
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