Saturday, October 10, 2009: 5:15 PM
The main topics of the paper are the followings:
1. Fulfilling the nominal convergence criteria and its sustainability faces new challenges under the conditions of the current crisis. Especially the risks related to convergence need to be taken into account. The relatively small size of the new EU member states, their high openness and their greater need for external financing caused a strong sensitivity against external shock impacts.
An “overshooting” of the real exchange rate may hinder the achievement of fast and sustainable nominal convergence. In the coming years painful macroeconomic corrections could be required due to increasing deficit. The financing conditions have become worse in those countries where high external and internal deficit has developed and the foreign currency lending was significant.
The simultaneous sustainability of the nominal and real convergence is of great importance. In the case of the lack of certain conditions (e.g. nominal stiffness) economic growth might stay for a longer period at a low level. Consequently real convergence might stop and even change direction.
2. The catch-up and the convergence are based on economic growth. At the same time in relation also with globalization and competition problems of the EU’s economy, the potential growth rate of the current average annual 2,4% might be halved - averagely - in the coming decades. The potential growth rate is expected to be halved also in the case of a relatively favourable labour productivity. It might indicate the unfavourable demographic changes.
Since accession the new Member States have been following transition paths leading to substantial convergence. Yet the pace of this catch up will dwindle over time and may eventually stop. The growth in these countries might be more moderate in three decades than the average of the EU-15 at that time. It is possible that the convergence of the new Member States will reach around three-quarters of the per capita GDP level of the EU-15, i.e. after the rapid initial convergence the EU-10 countries will increasingly constitute a stagnating "convergence club".
3. The present global crisis resulted in the deepest recession we have seen since WWII. New risks appeared. The risk of shock repetition is high. These changes project further erosion of the growth potential in Europe. The trajectory of the steady-state shocks threatens with the complete collapse of the European growth and catch-up model.
4. The abovementioned projections assume that there are no changes in the policies of the EU member states. Comprehensive, integrated structural reforms (Lisbon-type reforms) could provide an opportunity to overcome these adverse developments and achieve higher growth than above and enlarge the Economic and Monetary Union. Consistently implementing these reforms will facilitate a renewal of the European model and thus a better outcome to convergence processes.
5. Fulfilment of the set goals depends to a not insignificant extent on convergence within Europe. The successful convergence of the new Member States which implies far-reaching reforms is a major prerequisite to the successful development of the European integration.
1. Fulfilling the nominal convergence criteria and its sustainability faces new challenges under the conditions of the current crisis. Especially the risks related to convergence need to be taken into account. The relatively small size of the new EU member states, their high openness and their greater need for external financing caused a strong sensitivity against external shock impacts.
An “overshooting” of the real exchange rate may hinder the achievement of fast and sustainable nominal convergence. In the coming years painful macroeconomic corrections could be required due to increasing deficit. The financing conditions have become worse in those countries where high external and internal deficit has developed and the foreign currency lending was significant.
The simultaneous sustainability of the nominal and real convergence is of great importance. In the case of the lack of certain conditions (e.g. nominal stiffness) economic growth might stay for a longer period at a low level. Consequently real convergence might stop and even change direction.
2. The catch-up and the convergence are based on economic growth. At the same time in relation also with globalization and competition problems of the EU’s economy, the potential growth rate of the current average annual 2,4% might be halved - averagely - in the coming decades. The potential growth rate is expected to be halved also in the case of a relatively favourable labour productivity. It might indicate the unfavourable demographic changes.
Since accession the new Member States have been following transition paths leading to substantial convergence. Yet the pace of this catch up will dwindle over time and may eventually stop. The growth in these countries might be more moderate in three decades than the average of the EU-15 at that time. It is possible that the convergence of the new Member States will reach around three-quarters of the per capita GDP level of the EU-15, i.e. after the rapid initial convergence the EU-10 countries will increasingly constitute a stagnating "convergence club".
3. The present global crisis resulted in the deepest recession we have seen since WWII. New risks appeared. The risk of shock repetition is high. These changes project further erosion of the growth potential in Europe. The trajectory of the steady-state shocks threatens with the complete collapse of the European growth and catch-up model.
4. The abovementioned projections assume that there are no changes in the policies of the EU member states. Comprehensive, integrated structural reforms (Lisbon-type reforms) could provide an opportunity to overcome these adverse developments and achieve higher growth than above and enlarge the Economic and Monetary Union. Consistently implementing these reforms will facilitate a renewal of the European model and thus a better outcome to convergence processes.
5. Fulfilment of the set goals depends to a not insignificant extent on convergence within Europe. The successful convergence of the new Member States which implies far-reaching reforms is a major prerequisite to the successful development of the European integration.