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Economic Convergence in South-Eastern Europe: Will the Financial Sector deliver?

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  • Morten Balling
    ()

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  • Max Watson
  • Valerie Herzberg
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    Abstract

    The rhythm of financial development in south-eastern Europe has accelerated. In a setting of low inflation and robust growth, domestic credit and cross-border flows are expanding. This process can strengthen real convergence by supporting productivity gains that enhance competitiveness and a smooth servicing of external liabilities. But such an outcome is not guaranteed. It depends on a favourable investment climate. Otherwise a normal expansion of household borrowing and housing investment might not be balanced by rising financial support for the traded goods sector, implying weak foundations for sustained growth. EU Accession - with its potential for trade and investment integration, and an acquis-based strengthening of institutions - improves the chances of good outcomes. It also triggers accelerated financial development, including through the role of EU-15 banks. There is a setting that raises the stakes for policy: it can spur the expansion of the productive economy; but it can also magnify distortions, as seen in the proliferation of unhedged foreign currency borrowing. Prudent fiscal policies and bold structural reforms are needed to underpin the medium-term outlook for growth and forestall risks of financial stress.

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    Bibliographic Info

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    This book is provided by SUERF - The European Money and Finance Forum in its series SUERF Studies with number 2007/2 and published in 2007.

    ISBN: 978-3-902109-38-5
    Handle: RePEc:erf:erfstu:45

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    Postal: SUERF c/o OeNB, Otto-Wagner-Platz 3, A-1090 Vienna, Austria
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    Related research

    Keywords: Financial stability; financial development; South Eastern Europe; the Balkans;

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    Cited by:
    1. Perisa Ivanovic & Zoran Grubisic & Nikola Fabris, 2011. "Policies Aa a Result of Global Credit Boom in SEE Countries," Book Chapters, Institute of Economic Sciences.
    2. Andreas Hoffmann, 2010. "An Overinvestment Cycle In Central And Eastern Europe?," Metroeconomica, Wiley Blackwell, vol. 61(4), pages 711-734, November.
    3. Zoran Grubisic & Perisa Ivanovic & Nikola Fabris, 2011. "Financial System Integration of Serbia in the European Financial System," Book Chapters, Institute of Economic Sciences.
    4. Zoran Grubisic & Perisa Ivanovic, 2012. "Influence of different monetary regimes on financial stability in see countries," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 1(1), pages 91-106.

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