European Integration in a Global Economy
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European Integration in a Global Economy

CESEE and the Impact of China and Russia

Edited by Ewald Nowotny, Peter Mooslechner and Doris Ritzberger-Grünwald

The expert contributors focus on global imbalances and accompanying policy challenges, competitiveness and trade, the sustainability of current growth strategies, and banking and financial stability in the light of the global economic and financial crisis. They provide a multi-disciplinary assessment, combining the views of high-ranking central bankers, policymakers, commercial bankers and academics, and demonstrate that a broad view of European economic integration is crucial given that spillovers and contagion were major issues of the recent economic crisis.
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Chapter 16: The sustainability of the catching-up process – a multidimensional take

Frank Moss


This contribution is intended to complement the views provided by four other authors. Its main purpose is to emphasize certain issues addressed in each of the four contributions, rather than providing an additional view on the sustainability of the catching-up process of Central, Eastern and South-Eastern European (CESEE) countries. The chapter focuses on four issues: first, credit growth and boom–bust cycles, which in the case of a number of CESEE countries are linked to a special additional challenge, namely the provision of credit in foreign currency; second, the concept of internal devaluation as a means to boost competitiveness in countries with fixed exchange rates, which is a feature of a number of CESEE countries; third, the concept of sustainable convergence, which – as with the previous concept – is not only of relevance for many CESEE countries, but also for EU and even euro area countries; and fourth, some key policy lessons for CESEE countries. Before addressing these four points, let me first of all put the economic outlook of the region in perspective, complementing Schneider’s contribution (Chapter 14). For small open economies such as the CESEE countries, situated in the close neighbourhood of the euro area, not only is the global economic picture of relevance, but more specifically also that of the euro area. As regards the macroeconomic picture, the ECB staff projections on the global outlook are by and large the same as those of the OECD. Advanced economies, coming out of a severe, though fairly short-lived downturn in the wake of the financial crisis, will be facing for some time to come the headwinds of balance sheet repair. This implies that emerging economies have become the primary driving force for global growth. The need for balance sheet repair is also clearly visible in the euro area, particularly for the public and the financial sector. The ongoing tensions in euro area financial markets, moreover, are having unfavourable effects on financing conditions and confidence, and are therefore likely to dampen the pace of economic growth in the euro area going forward. At the time of writing the ECB is expecting a significant downward revision to the projections for euro area real GDP growth in 2012, with something of a halt in growth in the period around the turn of the year. Pending the release in December 2011 of the latest staff projections, the autumn 2011 forecast of the European Commission provided confirmation that the upturn after end-2011 will probably be weak in the euro area and the EU. Moreover, uncertainty is extremely high and a number of downside risks can be identified, which might make a very moderate growth upturn in 2012 seem a likely outcome.

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