From Crisis to Recovery: Old and New Challenges in Emerging Europe

234 Pages·2012·2.848 MB·English

by  Thierry Bracke, Reiner Martin (eds.)

From Crisis to Recovery
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From Crisis to Recovery
Old and New Challenges in
Emerging Europe
Edited by
Thierry Bracke and Reiner Martin
European Central Bank
Editorial matter and selection © Thierry Bracke and Reiner Martin 2012
Individual chapters © Contributors 2012
Softcover reprint of the hardcover 1st edition 2012 978-0-230-35528-6
All rights reserved. No reproduction, copy or transmission of this
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in accordance with the Copyright, Designs and Patents Act 1988.
First published 2012 by
PALGRAVE MACMILLAN
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registered in England, company number 785998, of Houndmills, Basingstoke,
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Palgrave Macmillan in the US is a division of St Martin’s Press LLC,
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Palgrave Macmillan is the global academic imprint of the above companies
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Palgrave® and Macmillan® are registered trademarks in the United States,
the United Kingdom, Europe and other countries
ISBN 978-1-349-34701-8 ISBN 978-1-137-03483-0 (eBook)
DOI 10.1057/9781137034830
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10 9 8 7 6 5 4 3 2 1
21 20 19 18 17 16 15 14 13 12
Contents
List of Tables viii
List of Figures ix
List of Boxes xiii
Acknowledgements xiv
Notes on Contributors xv
Introduction 1
1 Convergence in Central and Eastern Europe:
Lessons and Non-lessons from the Crisis 6
Lorenzo Bini Smaghi
1.1 Introduction 6
1.2 Non-lessons for convergence 6
1.3 Lessons for convergence 7
1.4 Policy lessons 9
1.5 Conclusion 11
2 Crisis and Recovery in Emerging Europe: The Policy
Response in Retrospect and Challenges Ahead 13
Jürgen Stark
2.1 Introduction 13
2.2 Looking back: what went right? 14
2.3 Looking ahead: what could go wrong? 17
2.4 Conclusion 20
3 A Fragile Recovery: Emerging Europe since
the 2008–09 Crisis 22
Yegveniya Korniyenko, Franziska Ohnsorge,
Franto Ricka and Jeromin Zettelmeyer
3.1 Introduction 22
3.2 The state of the recovery: a snapshot 23
3.3 Policies since 2009 31
3.4 Regional vulnerabilities 45
3.5 Conclusion 60
Summary of Discussion at 2011 ECB Economic
Conference on Emerging Europe 65
v
vi Contents
4 Emerging Europe: Refining the Growth Model to
Support Sustainable Convergence 70
Bas B. Bakker and Yan Sun
4.1 Introduction 70
4.2 The growth model in the pre-crisis years:
domestic demand and non-tradable sector 75
4.3 T he crisis of 2008 and the end of the old growth model 80
4.4 Towards more balanced growth 85
4.5 R aising total factor productivity and labour
force participation 88
4.6 Conclusion 95
Summary of Discussion at 2011 ECB Economic
Conference on Emerging Europe 99
5 Emerging Europe in the Great Recession: Is Europe different? 104
Fabrizio Coricelli
5.1 Introduction 104
5.2 The ‘European growth model’ 106
5.3 Financial integration and domestic
financial development 107
5.4 Financial and trade integration: some stylised facts 109
5.5 Foreign currency loans and the adoption of the euro 118
5.6 The weakness of the European model
of integration: The lack of a Lender of Last Resort 120
5.7 Conclusion 122
Summary of Discussion at 2011 ECB Economic
Conference on Emerging Europe 125
6 Balance Sheet Repair and Reviving Private Sector
Lending: A Survey of Financial Stability Challenges in
Central, Eastern and South-Eastern Europe 130
Peter Mooslechner and Thomas Reininger
6.1 I ntroduction 130
6.2 Some stylised facts of credit developments in CESEE 132
6.3 Structural features of private financial liabilities and
bank lending in CESEE 138
6.4 H ousehold finances in CESEE: evidence from
the OeNB Euro Survey 145
6.5 The main challenges for macrofinancial
stability in CESEE 151
6.6 A short summary and some obvious priorities 155
Summary of Discussion at 2011 ECB Economic
Conference on Emerging Europe 160
Contents vii
7 Challenges after the Crisis in Emerging Europe:
A Look outside the EU Borders 164
Kristel Buysse and François Gurtner
7.1 Introduction 164
7.2 Economic and financial challenges in
the western Balkans 166
7.3 External imbalances and capital flows in
the western Balkans 175
7.4 Economic and financial challenges in Ukraine 187
7.5 Conclusion 198
Summary of Discussion at 2011 ECB Economic
Conference on Emerging Europe 205
Index 211
Tables
2.1 Central and Eastern European EU member states on
the eve of the crisis, 2007 15
3.1 E mployment growth and labour market rigidities 26
3.2 Determinants of credit growth: December 2009–June 2010
and June 2010–June 2011 32
3.3 F iscal austerity measures, 2010–11 44
3.4 E xposure of transition countries to the eurozone 58
3.5 Exposure of transition countries to Greece, Ireland,
Italy, Portugal and Spain 59
4.1 Europe: growth in output and factor contributions 72
4.2 Emerging Europe: general government overall balance 82
5.1 Current account adjustments in EEMEs 114
7.1 Exchange rate arrangements in the western Balkans 170
viii
Figures
2.1 GDP per capita in EU member states 18
3.1 Growth in EBRD countries started to approach
other emerging markets by Q2 2011 24
3.2 ... but their post-crisis GDP levels remain far below
those of other emerging markets 24
3.3 Domestic demand and investments are the main
driving forces of the recovery in 2011 25
3.4 Real wage growth is slower than real output growth
in most countries 27
3.5 Rising net capital inflows are mostly FDI driven 28
3.6 FDI inflows are still weak where pre-crisis FDI
was directed at financial intermediation 28
3.7 Credit growth is slow relative to other emerging markets 29
3.8 Credit growth is significantly below pre-crisis levels 29
3.9 Strong local currency credit growth in Belarus,
Russia and Turkey 30
3.10 Real output and real credit growth are
positively correlated 31
3.11 Reform progress was more frequent than reversals
during the crisis years 34
3.12 As of August 2011 real interest rates were negative or very
low in many of the EBRD’s countries of operations 35
3.13 Several countries have implemented monetary
tightening measures 36
3.14 Inflation is especially high where non-core price
rises remain significant 37
3.15 Core inflation has been rising in countries with
growing economies 38
3.16 Fiscal consolidation has generally been front-loaded 41
3.17 ... and largely expenditure based 41
3.18 Drag on growth in 2009 from fiscal consolidation
was small relative to other factors 42
3.19 ... but grew larger in 2010, especially in the Baltic states 43
3.20 Current account deficits have reduced 45
3.21 Bank capitalisation has improved 46
ix