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


  • Max Watson
  • Valerie Herzberg


The pace 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 rapidly. This can strengthen sustainable real convergence by supporting productivity gains – thus underpinning higher incomes, enhanced competitiveness and a smooth servicing of external liabilities. But such an outcome is not guaranteed. It depends on a favourable investment climate. Otherwise, an expansion of private consumption and residential investment may not be matched by growth in the traded goods sector and in other productive activities. EU Accession – with its potential for trade and investment integration, and an acquis-based strengthening of institutions – improves the chances of good outcomes. But deep structural reforms, as well as sound fiscal and prudential policies, are essential to foster sustainable growth and to avoid financial stress.

Suggested Citation

  • Max Watson & Valerie Herzberg, 2007. "Economic Convergence in South-Eastern Europe: Will the Financial Sector deliver?," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
  • Handle: RePEc:erf:erfssc:45-1

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    Cited by:

    1. Andreas Hoffmann, 2010. "An Overinvestment Cycle In Central And Eastern Europe?," Metroeconomica, Wiley Blackwell, vol. 61(4), pages 711-734, November.
    2. Perisa Ivanovic & Zoran Grubisic & Nikola Fabris, 2011. "Policies Aa a Result of Global Credit Boom in SEE Countries," Book Chapters, Institute of Economic Sciences.
    3. 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.
    4. Zoran Grubisic & Perisa Ivanovic & Nikola Fabris, 2011. "Financial System Integration of Serbia in the European Financial System," Book Chapters, Institute of Economic Sciences.

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