Transcript 1. dia

NEW EU MEMBERS OF CENTRAL AND
EASTERN EUROPE
Impacts of EU Membership on New Members
Tibor Palánkai
Emeritus Professor
Corvinus University of Budapest
2011. Spring
Prof. Palánkai Tibor
Integration Maturity – Framework of Analysis
Accession maturity (meeting certain pre-set and
concretely defined criteria as condition of entry into the
organisation),
Membership maturity (concrete criteria for members
inside organisation) and
Integration maturity.
Copenhagen Criteria 1993
1.
2.
3.
4.
5.
Stability of institutions, guaranteeing democracy (rule
of law, human rights, respect for and protection of
minorities);
A functioning market economy;
Capacity to cope with competitive pressure and market
forces within the Union;
Ability to take on the obligations of membership,
including adherence to the aims of political, economic
and monetary union;
The Union’s capacity to absorb new members.
Main Dimensions
Integration maturity analyzed: in three main
dimensions:
• Economic maturity,
• Political (social) maturity and
• Institutional maturity.
Integration maturity analysed only in economic
terms.
Political and institutional maturities mix up with
accession or membership procedures.
Political Maturity
Rome Treaty (1957): – State of democracy,
Copenhagen (1993): Stability of institutions,
guaranteeing democracy
Madrid (1995): Functioning institutions
Economic maturity
Main elements of economic integration maturity:
•
•
•
•
•
Market economy (“functioning”);
Competitiveness (structural patterns);
Macro-stability and stabilization;
Convergence (real or financial);
Financing or financeability;
Marketisation Completed
By the end of 1990s, the basic structures and institutions of
marketisation created, most of the CEcs are not less
marketised, than countries with a similar level of
development (NICs, Latin-American or even South
European countries). Others followed later.
The market structures have been consolidated and
expanded (number of banks, companies on stock
exchange, expansion of financial services, improvement
of market infrastructures, high number of bank cards or
computerized bank transfers etc.)
Deficiencies of Marketisation
•
•
•
•
•
•
Modern market infrastructures still have to be further
developed,
Further modernization of the banking sector,
Reform of the public services sphere and finances,
Suppression of the black or grey economy,
Competition policies should be up graded,
Elimination of chain debt, which is undermining
stability.
Impacts of Associations
They made possible rapidly to reorient their trade towards
EU as main partner.
In 1989, about 25-30% of trade of Candidates was with EC,
by 1993 this share was 50%, and by 2002, it increased
in New Member’s export to 67%, and in their import to
64%.
The trade integration reached the high level, characteristic
to the EU member countries.
Trade integration of CEE was the major factor in the rapid
export-led growth and from 2000s real economic
convergence (1,5-2% growth “surplus) of the CEE
region.
Development of EU integration processes
Some indicators of integration in the EU:
Share of intra EU export to GDP:
1960: 7,7%; 1970: 10%; 1980: 13%; 1990: 14%;
2000: 22%; 2007: 24%.
Share of intra-export in total export:
1960: 30%; 1972: 50%; 1985: 55%,
EU15: 1992: 62%, 2004: 65%, 2007: 60%.
Enlargement and Integration
Share of intra EU 25 export to total:
1999: 68.1%; 2004: 66.4%; 2007: 67%.
Share of EU15 in the new members export:
1990: 25-30%; 1999: 68.6%; 2004: 65.4%; 2008: 59.7%.
Share of NMS of in NMS total export:
1999: 13.2%; 2004: 15.35, 2007: 19.5%.
Share of RoW in NMS export:
1999: 18.3%; 2004: 19.4%; 2007: 20,9%.
Competitiveness
Every market integration raises the question of
development differences: levels of costs and
competitiveness.
Competitiveness is a complex indicator, can be defined in
both micro- and macro-economic contexts. Countries
compete not only with their techno-economic structures
(technologies, products, innovations, company
managements etc.), but also with their socio-economic
and institutional systems.
The relationship between balance of payments and the
exchange rate and competitiveness.
Complex definition of competitiveness
On micro-level.
On macro level:
On each:
• Technical and structural factors,
• Macro-performances,
• Infrastructures,
• Institutional and political (economic policy) factors,
• Subjective factors.
Competitiveness
On micro-level:
• Cost level and quality of products;
• Level of productivity of the given sector or products;
• Innovation, introduction of new technologies and
products;
• Forms of comparative cost advantages.
• Efficiency of management and marketing;
• Subjective factors.
Competitiveness
Some important macro-parameters:
• Levels of development, productivity,
• R&D expenditures (level, growth, relation to
GDP and per capita),
• Position of high-tech sectors,
• Exchange rate stability,
• State and development of factor market,
• State of human capital and infrastructure.
State of Competitiveness of CEE
Comparative wage cost advantages. The Hungarian
productivity is 58% of the EU average, while the
wages are only 40% of it. (2002). Productivity as
output per worker employed in manufacturing rose
between 1991 and 2000 2.2 times. Real wages rose
only 30%.
Relatively good quality and low cost of their human
capital, labour is under-priced.
Average productivity of New Members amounts to about
2/5 (40%) of old EU, average monthly wages in
manufacturing in the old EU are 5-10 times higher.
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Productivity per Employed
PPP calculated GDP
EU27
Finland
Germany
France
Hungary
Slovenia
Slovakia
Czech Republic
Portugal
Poland
1997
100
112
112
109
62
72
55
61
69
50
2007
100
113
107
100
76
87
76
73
68
62
Eurostat 1997- 2008
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Knowledge Intensity
Export of Hi-tech products
BG
% of total e xports
2006
CZ
1999
EE
LV
LT
HU
PL
RO
SI
SK
NMS
O MS
WO RLD
0
5
10
15
20
19
25
30
Participation in Life-long Learning in Percent
of 25-64 old
EU15
12,1
Sweden
34,5
Denmark
27,6
France
7,6
Germany
8,2
Hungary
4,2
Czech Republic
5,9
UK
29,1
Portugal
4,6
Spain
12,1
European Innovation Scoreboard
2007
20
Access to High Speed Internet
per 100 population
EU25
10,6
EU15
12,0
USA
14,9
Japan
16,3
Netherlands
22,4
Denmark
22,0
France
13,9
Hungary
4,5
Czech Republic
4,3
Portugal
10,1
Poland
21 1,9
European Innovation Scoreboard 2007
State of Competitiveness of CEE
CEE are still far away of the knowledge-based society. In
Hungary R&D fell from 2% to 0.5% in early 1990s. Since
recovery it is on 1% level, but still far behind of 2% of
EU.
Some multinationals set up research bases in CE (Nokia in
Hungary).
Behind in use of Internet, relatively high communication
costs (in Hungary about 25-30% above EU average),
relative lagging behind in infrastructure, high costs of
local capital.
Enlargement and Competitiveness
With full membership new competitive conditions:
• Liberalization extended to agriculture, contradictory
results.
• By entering single market, ‘asymmetry’ in non-tariff,
informal trade barriers disappear.
• In single market, new members will be able to use
their cost advantages in service sectors (health,
technical design, education, etc., but “Polish plumber”)
• Greater budget transfers for compensations.
Opening to global markets (CET lower than national tariffs)
Union’s competitiveness on global markets may improve.
Macro-economic stabilization
Economic stability is an important factor of integration
maturity (from the point of view of the normal functioning
of the market, and of the ability to exploit the advantages
of any market integration).
Macro-economic stability and integration are mutually
dependent, while it is one of the preconditions of
successful integration, it is also an indicator of the
success of that integration. (Interrelations between rapid
economic growth and success of integration.)
Stability and stabilisation
The performance of the EC countries as a benchmark.
• Compare performance to the average of the present EU
economies.
• Take the best-performing EU countries.
• Comparisons of countries of more or less similar levels
of development.
• Maastricht criteria combined with the Stability Pact
(about 2% inflation, a 0-3% budget deficit and less than
60% debt in terms of GDP).
Economic Performance in Historical
Perspectives
CEEcs had relatively rapid growth during 1950s and 1960s,
which supported illusions about wining “peaceful
competition”. SU in early 1960s set an objective
overtaking the US by 1980.
Due to world economic crisis, gradual deterioration of the
performance of centrally-planned economies from
early 1970s, which culminated by the end of the
1980s, and lead to collapse of the Soviet system in
CEE.
Failure to adapt to new challenges, particularly that of
globalisation.
Hungary in Stop-go Cycle
GDP Annual growth in 1950-59 1960-69 1970-79 1980-88
3,8
3,1
2,3
1,1
Hungarian economy in a “stop-go” cycle, from early 1970s
to 1988.
It meant deterioration of budget and balance of payments
during rapid growth,
Stagnation of economy due to the necessary restrictions.
Economic growth was around 1-2%.
When growth above 3% (1987 and 1994) indebtedness just
doubled in one year.
Growth was unsustainable.
Hungarian Economic Performance
GDP
1989
1990-93
1994-99
2000-05
2006
2007
2008
2009
2010
Growth Inflation Budget
%
%
deficit %
-0,2
17.0
-5,5 (-20) 27,2
5,6
3,3
18,7
5,1
4,1
6,5
5,7
3,9
6,5
9,2
2,4
6,5
6,2
0,6
6,1
3,4
-6,3
4,2
3,9
1,2
4,9
3,7
Unemployment
%
0,6
12,3 (1992)
7,0 (1999)
5,9 (2003)
7,5
7,6
7,8
9,8
11,2
„Transformation Recession”
Transformation accompanied by a so-called
“transformation recession” at the beginning.
Term introduced by János Kornai, and the process
culminated in 1991-93.
Recession was unprecedented, similar fall in production
happened only during the “Great Depression” of 192933, but was not repeated after the war.
Accompanied by hyper-inflation and sudden increase of
unemployment.
„Transformation Recession”
Hungary between 1988 and 1993 lost 20% of (in 1929-33
only 10%),
Former full employment turned to 12% unemployment
(1992),
In 1991 inflation peaked at 38%.
The depth of the 1990s crisis differed greatly from one
country to another, and so did the subsequent
recovery, which started in 1993-1994.
„Transformation recession”
Decline of GDP:
Country Transformation crisis
(in the period 1989-93)
as %
Slovakia
about 20%
Hungary
about 20%
Poland
about 20%
Slovenia
about 20%
Croatia
about 25%
Czech Republic about 20%
„Transformation recession”
Decline of GDP 1989-1993:
Latvia
Lithuania
Estonia
Romania
Bulgaria
Eurostat.
above 50%
above 50%
about 35%
about 40%
about 45%
„Postponed-Transformation Crisis”
Fall in GDP:
Czech Republic
1997-99
4%
Lithuania
1999
4%
Estonia
1999
1%
Romania
1997-99
13%
Bulgaria
1996-97
17%
Due to slow and delayed restructuring of economies,
hesitant, postponed privatisation (commercial banks) in
Romania and Bulgaria, Czech Republic. In Baltics,
Russian crisis caused a mini-recession.
Recovery and Catching up
Growth of GDP after 1994-95 accelerating:
Annual growth
Annual growth
1996-2000
2001-2005
Czech Republic
1,5
3,6
Slovakia
3,8
4,6
Poland
5,4
2,9
Hungary
4,0
4,2
Croatia
3,4
4,7
Recovery and Catching up
Growth of GDP after 1994-95 accelerating:
Annual growth
Annual growth
1996-2000
2001-2005
Bulgaria
-0,8
4,9
Romania
-1,3
5,7
Estonia
6,1
8,3
Latvia
5,7
8,1
Lithuania
4,2
7,6
Growth rates indicate that global recession in early 2000
left CEE unaffected.
Recovery and Catching up
Growth of GDP between 1989 and 2005:
Level of 2005 in percentage of 1989
(1989=100)
Czech Republic
120,7
Slovakia
141,7
Poland
148,3
Hungary
127,8
Croatia
100,1
Slovenia
135,4
Recovery and Catching up
Growth of GDP between 1989 and 2005:
Level of 2005 in percentage of 1989
(1989=100)
Bulgaria
Romania
Estonia
Latvia
Lithuania
93,8
104,8
127,9
106,4
99,2
Summary of Stabilisation
CEE countries have produced diverging performance in
stabilization of their economies.
CE countries returned to pre-transformation level by end of
1990s.
Others (Bulgaria, Croatia, Romania) followed later, Baltic
countries had to cope with Soviet inheritances.
Unemployment meant a high social cost of transformation.
By entering EU in 2004, all countries completed
stabilization of their economies, and they got close to
meet Maastricht criteria.
Growth Patterns after 2004
• Rapid growth in NMS after 2004, with
around 6-7% annual increase of GDP.
• In Baltics, Romania and Slovakia growth
was close or above 10% (certain
overheating). Hungary growth fell from the
4% to 1% after 2006, due to restrictions.
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Growth Impacts of Enlargement
Unprecedented and robust dynamic impacts:
• Accession process boosted economic growth in
the new Member States by about 1¾ percentage
points per year over 2000-08, when growth
increased from 3½%, on average, in 1999-2003 to
5½% in 2004-08.
• Growth in the old Member States also benefited
from enlargement (adding up to a cumulative
increase in output of around ½% over the same
period).
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Impacts of Global Crisis
Growth of GDP in 2005-2010:
Annual growth
2005 2006 2007 2008
Czech Republic
6,0
6,0
6,1 2,5
Slovakia
6,0
6,2 10,6 6,2
Poland
3,2
5,8
6,8 4,9
Hungary
4,1
3,9
0,9 0,7
Slovenia
6,8 3,5
EU 15
0,8
2,5
2,0 3,1
EU 10
7,0 4,3
EU 27
2009 2010
-3,9
1,8
-5,0
3,9
1,7
3,8
-7,7
1,2
-7,8
1,2
-3,7
1,8
-8,3
2,5
1,9
Impacts of Global Crisis
Growth of GDP in 2005 and 2010:
Annual growth
2005 2006 2007 2008 2009 2010
Bulgaria
5,5
6,5
6,2
6.0
-5.2
0,1
Romania
4,1
8,0
6,2
7,1
-7,0
2,5
Estonia
9,8 11,5 6,3
-3,5 -15,5
1,3
Latvia
10,2 12,0 10,0
-4,6 -17,0 -0,9
Lithuania
7,4 8,1 8,9
2,8 -16,0 0,9
Croatia
4,3 4,8 5,5
2,4
-6,0 -1,5
Remarkably high growth produced till 2007, but dramatic
fall in 2009 and slow recovery in 2010, except Romania.
From Stabilization to Present Crisis
1. Most of the countries suffered from stagnation
of their economies from the 1970s, negative
growth from the second half of the 1980s.
2. CEs were “only moderately” hit by the
transformation recession, and they turned to
recovery after 1993-4. Some others hit by a
postponed-transformation crisis in late 1990s).
3. CE caught up by end of 1990s to 1989 levels,
others followed with some delay.
From Stabilization to Present Crisis
World economic slow down of 2001-2002 has not
been felt in CEE (in some countries only by
moderate slow down of growth). High growth in
2005-2007.
Most of the NMs greatly affected by financial crisis
after 2008, most of the economies slowed
down, and negative growth in 2009, except
Poland. still modest recovery in 2010.
Convergence broken after 2008.
Unemployment in CEE
As percentage of labour force
Country
Peak year
(1990-2007)
Czech Republic
2005
Hungary
1992
Slovenia
1992
Slovakia
2001
Poland
2002
EU15
1994
*Lowest was in 2001 - 5,7%.
Highest
8,9
11,9
11,5
19,0
19.0
11,1
Level
2007 2009
6,6
8,1
7,3* 9,9
4,9
5,8
11,0 11,8
11,2 10,9
7.5
2010
8,7
11,2
7,0
14,5
12,1
Unemployment in CEE
As percentage of labour force
Country
Peak year
(1990-2007)
Bulgaria
1993
Romania
1993
Estonia
2000
Lithuania
1995
Latvia
1995
EU 15
1994
Highest
21,4
10,4
12,8
17.1
18,9
Level
2007 2009
6,9
9.3
4,3
6,3
4,7
13,7
4,3
13,5
6,0
17,1
11,1
8.9
9,9
2010
9,1
7,6
18,2
17,3
15,1
Unemployment in CEE
Unemployment was a relatively new phenomenon in the
region. Before 1989 unknown in CEE, except Yu.
One of the costs of transformation crisis, unemployment
increased in all these countries.
In many countries unemployment peaked nearly 20%. Only
Czech Republic, Hungary, Slovenia and Romania
remained bellow comparable EU averages.
Poland as the largest (Slovakia and Croatia) had to cope
with high (15-18%) unemployment till early 2000s.
High unemployment was one of the constraints of
enlargement.
Employment impacts of Enlargement
•
•
•
•
As a result of corporate restructuring, the
contribution of labour was negative in 1999-2003.
Since 2004, robust growth in employment of
about 1½% annually in the new Member States
went alongside
Strong employment creation in the old Member
States (about 1% per year since enlargement).
Contradicting assumptions on „Dislocation”
48
Unemployment and Crisis
In all countries unemployment increased
substantially in 2009, and the process
continued in 2010.
Dramatic increase in Baltic countries, in spite of
modest recovery.
Only Czech republic, Slovenia, Bulgaria and
Romania remained bellow of EU15 level.
Inflation performances
Country
Peak year inflation
2007
2,8
2,8
7,5
Inflation
2009
1,0
1,6
4,2
Czech Republic 1991 (58)
Slovak
1991 (58)
Hungary
1991 (35)
“Hyper-inflation” (three-digit or more)
“Moderate inflation” (12-18%)
“Desirable inflation” (2-3.5%)
Above three countries avoid hyper-inflation.
2010
2,1
1,0
4,9
Hyper-inflation countries
Country
Poland
Slovenia
Romania
Bulgaria
Estonia
Latvia
Lithuania
Croatia
Periods
Peak year 2007 2009 2010
1989-90
1990 (586)
2,5 3,5 2,6
1989-92
1989 (550)
3,6 1,0 1,9
1990-94 (-97) 1993 (256)
4,8 5,6 6,5
1991(-97)
1997 (1061) 8,4 2,8 9,1
1991-92
1992 (1076) 6,6 -0,1 2,2
1991-93
1992 (954) 10,1 3,7 -1,4
1991-93
1992 (414)
5,7 5,4 1,0
1989-93
1993 (1517)
2,9 2,5 1,0
Evaluation of inflation performance
•
•
•
•
Inflation did not exist in most of CEE, except the reform
countries (Yugoslavia, Poland and Hungary).
Most of the countries, during the transformation crisis
had to cope with hyper-inflation. Hyper-inflation was
avoided by Czech Republic, Hungary and Slovakia.
Hyper-inflation re-emerged later in slowly transforming
and stabilizing countries in 1997 (Bulgaria and
Romania).
Bulgaria was successfully dealing with inflation with
the help of currency board.
Evaluation of inflation performance
•
•
The Phillips curve seems to be validated for
the Baltics (and Bulgaria), where low inflation
was achieved at the expense of high
unemployment. Hungary and Slovenia is an
opposite case for structural reasons..
By 2002-2003, most of the countries brought
down their inflation to a desirable level, and
meeting requirement for joining the Euro-zone
(around 2-3%). The exceptions were:
Romania, Slovakia, Slovenia and Hungary.
Evaluation of inflation performance
•
•
•
After 2003, in most of the countries inflation
increased again (due to high growth).
After 2008 recession had deflationary affects
with question marks for the future.
In 2010, practically only Romania (6,1%) and
Hungary (3,7%) were above the Euro-zone
average (2,2%)
Varying budget deficits
The NMCs, when joining in 2004, met the 3%
requirement, except Hungary (6,4%), Poland
(5,4%) and Cyprus (4,1%).
By 2009 (2010) considerable deterioration:
Some countries produced above 10% (Greece,
UK, Spain, and Ireland) or around 6-7%
deficit in GDP (Cyprus, and France)
55
Varying budget deficits
In 2010, the budget deficit in GDP was around
7-8% in Slovakia, Poland, Romania,
Slovenia (6,3%), Latvia and Lithuania;
It was bellow 3% only in Estonia (1,4%), which
helped to join the Euro-zone in 2011.
The deficit was close to 4% in Czech Republic
(4,5%) and Bulgaria (4,3%).
Hungary's deficit peaked at 9.2% of GDP in
2006, but after improvement (2010 - 3,7%).
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Summary evaluation
CEE countries have produced diverging
performance in stabilization of their economies.
CE countries returned to pre-transformation level
by end of 1990s.
Others (Bulgaria, Croatia, Romania) followed later,
Baltic countries had to cope with Soviet
inheritances.
Unemployment meant a high social cost of
transformation.
Summary evaluation
By entering EU in 2004, all countries completed
stabilization of their economies, and they rapidly
converged and many got close to meet
Maastricht criteria. Following years of
overheating lead to acceleration of inflation.
The crisis after 2008 had heavy affects on CEE
economies, they were more seriously hit than
old members in growth and unemployment).
Inflation and budget performance of NMs diverged
largely.
Convergence (real and financial)
Convergence is a necessary condition of efficient and
successful integration.
Equalized levels are not demanded, but in the case of large
differences (industrial and developing countries) the
benefits may be unequally distributed.
In these cases, compensations:
• asymmetric liberalization
• financial aid (compensation);
• technical and other types of assistance.
Convergence (real and financial)
Closer forms of integration (EMU) are more sensible from
the point of view of real convergence.
EMU may aggravate (regional) differences, and budget
(cohesion) transfers may be needed to compensate.
Monetary and fiscal convergence (the Maastricht criteria)
are preconditions of stable monetary union, particularly
of price stability.
Per Capita GDP EU27 - 100
Country
1960 1973
Greece
44
71
Portugal
41
59
Ireland
63
61
Spain
59
77
Hungary
60+
+European average
Eurostat.
1990 2004 2009
58
94
93
62
75
75
74
142 146
76
101 107
41
63
64
Per Capita GDP EU27 - 100
Country
Hungary
Czech Republic
Slovenia
Latvia
Estonia
Poland
Romania
Germany
Finland
*1995
Eurostat
1990 2000 2004 2009
41
56
63
64
61
69
75
82
74*
79
85
89
31*
37
46
49
31
40
52
56
33
43
46
55
25
23
31
43
119
117 113
118
117 117
Convergence
Income per capita rose from 40% of the old Member States'
average in 1999 to 52% in 2008.
Clearly, per capita GDP is far not satisfactory.
Deutsche Bank Research, convergence web is computed by 5
groups of indicators, based on a composite of 16 variables.
Hungary now at 62%, equal to the 1960s (to early 90s fell back
to 43%). Questions about sustainability of catching up.
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END
Thank You
Prof. Palánkai Tibor