Breakneck growth rates across
post-transition economies are ushering in new risks for the
region that can only be properly tackled by a redoubling of
political will. This is the message of the EBRDs
transition report update unveiled today.
Although many countries across
the CEE region are on the verge of graduating from EBRD
programmes as market economies become entrenched, the downside
of their rapid growth is becoming increasingly apparent, the
Many of the problems that
countries are facing are associated with this fast growth, such
as the overheating and the distribution issues: people are
feeling that growth is not benefiting everybody. When people
have gone through major sacrifices, once the economy starts
growing, you want to give them their compensation, Erik
Berglof, the banks chief economist, told Emerging
The rise of consumers is also
the key theme for a presentation today by Debora Revoltella,
the CEE chief economist for Unicredit, which is now one of the
largest players in the regions retail banking market. She
cautioned against assuming that the catch-up process in incomes
and living standards is going too fast.
We have some concerns
about high lending growth, but in Bulgaria for instance, we see
that much of the rise in external debt is in the corporate
sector, related to high levels of FDI. In the household sector,
net savings are still rising, Revoltella told
She is more concerned about the
decline in policy momentum following EU accession, observing
that aside from Hungary, which embarked on a severe fiscal
correction in 2006, many other governments are just
lucky that high growth rates are helping public finances
stay on track.
We do not see Poland, for
example, joining the Eurozone before 2012, but this is mainly a
political decision not an economic decision. We think they
could converge to the 3% Maastricht target much earlier, but at
this moment, they are not tackling the fiscal performance or
long-term structural issues, she said.
Berglof agreed that other
eastern European states are not yet confronting these
challenges in the way that Hungary was obliged to last year.
I wish there was some more learning across
countries, he told Emerging Markets.
In the lead-up to
accession, there were lots of pressures on these countries from
the outside. Once you enter, the pressure is not as strong, and
that does create some problems, for instance in public sector
procurement and investment, and competition policy.
However, Berglof distinguished
between a slowdown in policy momentum and an outright reversal
of transition. It is not about reform now, it is more
about making difficult decisions on fiscal discipline. The
growth is entrenched.
On that note, Berglof emphasized
that part of the graduation process means the EU will need to
pick up the baton from the EBRD to set the policy tone for the