Central and eastern Europe: Outlook and expectations for the next 18 months Matthew Sherwood Senior...
Transcript of Central and eastern Europe: Outlook and expectations for the next 18 months Matthew Sherwood Senior...
Central and eastern Europe:Outlook and expectations for the next 18 months
Matthew SherwoodSenior editor/economistDeputy, Country Risk Services
June 2002
Central Europe is looking good
Central European growth weathers the EU slowdown
Inflows of FDI fueling growth, productivity and restructuring
Fiscal deficits remain a concern Current-account deficits also a potential
problem Inflation heads towards convergence
with the EU
00.5
11.5
22.5
33.5
44.5
2001 2002 2003
Cz Rep Hungary Slovakia Poland EU
Respectable GDP growth
Source: EIU Country Data
% real change
-6
-5
-4
-3
-2
-1
0
2001 2002 2003
Cz Rep Hungary Slovakia Poland
Budget deficits boom
Source: EIU Country Data
% of GDP
0
2
4
6
8
10
2001 2002 2003 2004 2005 2006
Cz Rep
Hun
PolSlo
EU-3
Ref
Inflation: towards convergence
av % change
Source: EIU Country Data
-9-8-7-6-5-4-3-2-10
2001 2002 2003
Cz Rep Hungary Slovakia Poland
Twin deficit problems return?
Source: EIU Country Data
% of GDP
1
2
3
4
5
6
7
8
2001 2002 2003
Cz Rep Poland Hungary Slovakia
Inflows of FDI remain strong
US$, bn
Source: EIU Country Data
0
100
200
300
400
500
600
700
800
2001 2002 2003
Cz Rep Poland Hungary Slovakia
Per capita FDI paints another picture
US$
Source: EIU Country Data
Eastern Europe is left behind?
Growth is no longer a problem Budgets actually look good Inflation has yet to be tamed Current-account balances: “left-outs”
versus the former Soviet Union Where’s the foreign investment?
0
2
4
6
8
10
2001 2002 2003
Bulgaria Romania Russia Ukraine
Strong growth in eastern Europe
Source: EIU Country Data
GDP, % real change
-4
-3
-2
-1
0
1
2
3
2001 2002 2003
Bulgaria Romania Russia Ukraine
Budget balances: a mixed performance
Source: EIU Country Data
% of GDP
048
12162024283236
2001 2002 2003 2004 2005 2006
Bul
Rom
Ukr
Rus
Inflation: Much to be done
CPI, av % change
Source: EIU Country Data
-8-6-4-202468
1012
2001 2002 2003
Bulgaria Romania Russia Ukraine
Current-account balances
Source: EIU Country Data
% of GDP
0
25
50
75
100
2001 2002 2003
Bulgaria Romania Russia Ukraine
Per capita FDI inflows remain paltry
US$
Source: EIU Country Data
EU enlargement: What could go wrong?
Enlargement in 2004: The dates Developments to watch negotiations run late Ireland rejects the Nice treaty public opinion turns against
enlargement Risk scenarios Implications for euro-zone accession
The Commission’s Road Map
1998 1999 2000 2001 2002 2003 2004 2005
Start neg. Luxembourg 6
Start neg. Helsinki 6
End of negotiations
Ratification & referenda
Accession
EP election
Danger points
1998 1999 2000 2001 2002 2003 2004 2005
Start neg. Luxembourg 6
Start neg. Helsinki 6 End of
negotiations
Ratification & referenda
Accession
EP electionIreland rejects Nice treaty
Ireland rejects Nice treaty again
Negotiationsrun late
Accession treaty opposedEU accession rejected
Accession?
Negotiations: The status quo
Agreements on most policy “chapters”, including migration, environment, competition, tax…Money issues left to the end: farm aid, regional subsidiesImplementation & enforcement lagging
0
10
20
30
CZ ES SL HU Pl SK LT BG RO
Policy chapters closed
2000 2002
What is behind the budget row?AC-10 as % of EU-15
0
25
50
75
100
Po
pu
lati
on
GD
P
GD
P P
PP
GD
P p
erh
ead
PP
P
Far
mer
s
Far
m la
nd
What’s behind the budget row? -2-
CAP: Farm subsidies to be
phased in over ten years Starting at just 25% of EU
Rural development spending only 10% of CAP budget
No final EU position until after German election
New members could be net contributors to EU budget?
Structural funds: Regional aid phased in
over three years All AC-10 eligible for
regional aid (per capita GDP < 75% EU av.)
Aid flows capped at 4% of GDP
Big budget row postponed until 2006?
Nice treaty
EU summit in Nice in 2000 agrees on institutional changes necessary for enlargement:
adjustment of voting weights in the Council of Ministers
reducing the number of portfolios (and Commissioners) in the Brussels bureaucracy
Ireland rejects Nice treaty in June 2001 May do so again in second referendum in
October/November 2002
What happens if Ireland says no?Scenario 1Institutional provisions pasted into the Accession treatyAccession treaty ratified
But:Political setback at a time when enl. talks are in their “hot” phaseLoss of political momentum, Euroscepticism Accession likely to be delayed
Scenario 2Institutional questions handed over to the Convention, which prepares the next Intergovernmental Conference (IGC)ICG concludes in 2004?New treaty ratified by 2005?
Enlargement 2006 or later?
Public opinion: The EU-15
Accession treaty needs to be ratified by 15 EU parliaments (and EP)
A majority is against EU enlargement in France, Austria, Germany...
Fears of migration despite 5-7 year transition period
Rise of the far right could further complicate accession talks or draw out ratification process
Public opinion: EU-15Is EU enlargement beneficial?
0%
50%
100%
EU-15
F A D UK E
Don't know
Not beneficial
Beneficial
Public opinion: The candidates
Accession treaty needs to be ratified by parliaments
Most (all?) EU candidates will hold referenda on EU accession after the end of the accession negotiations
Public opinion is still in favour of EU accession in most countries
Rising Euroscepticism Resentment against EU attempts to get
enlargement “on the cheap”
Public opinion: The candidates
0%
50%
100%
AC13
PL CZ HU LV ES RO
Would not voteDon’t knowAgainstFor