EU and CEE: productivity and convergence

The performance of the Central and Eastern European (CEE) European Union (EU) member countries since the 1990s has been outstanding, making them a key driver of growth in Europe. Following dramatic institutional and economic transition, starting from productivity levels that were only half of the ‘old’ Europe average, this catch-up process has slowed down somewhat during the crisis, but is still in place. The CEE region clearly needs to find new investment drivers, and the key challenge for Central and Eastern Europe today is to manage the transition from imported productivity gains to endogenous sources of innovation as drivers of growth. Europe as a whole, in turn, was converging towards the United States (US) in terms of increases in labour participation and employment since the mid-1990s, and that trend was present all the way up until the beginning of the crisis. Yet the crisis has revealed many of the structural and institutional weaknesses of the old EU. It lags behind the US in the information and communication technology sector, in terms of working hours, in terms of the business environment, which is much more favourable than in old Europe, and CEE countries are lagging behind even more. In addition, firms in the US have easier access to different funding sources which results in higher degree of business dynamism. Europe, so far, has been unable to create an environment for fast-growing companies and that is something that should be a goal for Europe as a whole, not just for CEE countries.