Brookings: Experts - Erik Berglöf

Crisis in Eastern Europe: Manageable – But Needs to Be Managed

Erik Berglöf — Sat, 28 Feb 2009 12:00:00 -0500

The leaders of Europe will meet this weekend to respond to the rapid deterioration of the economic situation in Emerging Europe. The situation varies a great deal; some countries have been more prudent in their policies than others. But all are joined, more or less strongly, through the deeply integrated European banking system.

Western banks and the Eastern economies

This relationship between the Western banks and the Eastern European economies, to date so mutually beneficial, is now being put to a test. It is not hard, as many commentators have done over the past week, to paint a negative scenario where one or more Western banks drastically cut their support to subsidiaries in the East and trigger nationalisations of these banks in the name of financial stability, setting off chain reactions across the region. The end result would be a massive contraction in credit available to Eastern Europe and enormous losses to Western banking systems.

But this is not what has been happening so far. Lending to the region has contracted, but the fact is that Western parent banks are standing by their subsidiaries. Most banks have to date been refinancing and recapitalising subsidiaries. In some cases the parent banks are actually looking at increases in credit this year. Even in Ukraine, arguably the country in most serious trouble, the foreign banks have committed to recapitalising their subsidiaries to the tune of 2bn euros this year.

Capital demands

Yet, the requirements for the region as a whole are very large. Excluding Russia and Kazakhstan, which can draw on their own resources, the region will need some 150 billion dollars in refinancing and recapitalisation this year alone. This number most likely underestimates the deterioration of bank portfolios, but does not take into account the reduction in credit demand as the recession starts to bite – some reduction in capital flows is only natural as the appetite for new investments dampens in the economic downturn.

The bulk of capital needs will have to come from the Western parent banks and their home country governments. Most of these banks are now under state-led rescue programmes and with some important exceptions the capital requirements in Eastern Europe are modest compared to the size of the parent bank balance sheets and the state programmes. The refinancing and recapitalisation needs of local banks without foreign parents should be addressed by their shareholders or their governments. Shortfalls can be covered by the international financial institutions, primarily the European Investment Bank, European Bank for Reconstruction and Development and the World Bank Group.

Unilateral actions by nations or banks could trigger a banking crisis

The situation is manageable, but it needs to be managed. Unilateral actions by individual countries or banks easily spill over across borders and across institutions. A sudden decision by an international bank to discontinue its support to foreign subsidiaries or restrictions imposed by home countries on the use of state funds for support to these subsidiaries abroad could easily trigger banking crises in the countries where these subsidiaries operate. Similarly, measures by host countries, like nationalisations of subsidiaries or forced conversions of foreign exchange exposures into local currencies, could set off chain reactions either through the balance sheets of the parent banks or simply by inspiring bank runs in other countries.

To date none of these things have happened either, but the pressure is rapidly building up as the global financial crisis deepens. The relations between home and host countries, and between host country governments and their banks, local or foreign, also need to be coordinated. Here again the international financial institutions are playing an important role. Steps have already been taken. In a joint initiative that has been informally underway for some time and was officially announced on Friday, they have been working closely together to bring together the various actors home country by home country, and host country by host country. The have also pledged $25 billion in funding to support the Eastern European banking systems. The additional capital these institutions bring to the table provides valuable incentives for the individual banks to collaborate.

What EU leaders must do

But this coordination, crucial as it is, may not be enough. This is where EU’s leaders come in.

They must provide a backstop to these efforts and put their weight behind the coordination.
They must also clearly signal that government-imposed restrictions on parent support for subsidiaries are not acceptable.

In fact, countries that are home to cross-border banking groups must not only tolerate, but encourage flows to subsidiaries in the East.

They should encourage the European institutions to play their part in this difficult exercise.

This applies to the European Commission, but also to the ECB which may help support a select group of central banks outside the Eurozone with liquidity and foreign currency credit lines.

The leaders should also indicate that if there is a serious shortfall, additional resources will be available to support the economies of Central and Eastern Europe.

But in order to encourage early action and collaboration it should be made clear that any additional resources will be made available only on conditions that are likely to be much less favourable for all parties concerned. Such additional funds could be channelled under strict conditionality through the IMF or possibly through the other international financial institutions. Conditions might well include forced conversions of foreign exchange exposures into local currency or nationalisations of foreign subsidiaries - all to secure fair burden-sharing between home and host countries and between the banks and the governments.

Conclusion

There is much to suggest that it was the belief that EU’s leaders will stand by Eastern Europe that prevented a full-blown meltdown last week. A failure to show substantive progress this weekend or over the next few weeks could well trigger a new round of speculative attacks. Strong leadership, on the other hand, would likely calm markets and signal that Europe stands behind its model of growth based on openness and integration.

Authors

Erik Berglöf

Publication: VoxEU.org

Targeted Improvements in Crisis Resolution, Not a New Bretton Woods

Erik Berglöf and Jeromin Zettelmeyer — Fri, 14 Nov 2008 12:00:00 -0500

The current crisis reveals two major flaws in the world’s crisis-resolution mechanisms: (i) funds available to launch credible rescue operations are insufficient, and (ii) national crisis responses have negative spillovers. One solution is to emulate the EU’s enhanced cooperation solution at the global level, with the IMF ensuring that the rules are respected.

Big global crises always trigger calls for big global reforms. This time is no exception.

Before G20 leaders embrace big-reform calls, they should look carefully at what happened the last time around.

When the last global crisis hit a decade ago, we saw a round of calls for big global reforms, including new institutions, new funds and new financial instruments that were touted as stabilising capital flows and allowing countries to insure against sudden stops. Other recommendations focused on bigger and better crisis lending, and on better international bankruptcy mechanisms.

While many of these ideas were good, virtually none of them were implemented.

Instead, the victims of the crisis — emerging markets — reacted unilaterally; they sought to shield themselves from similar shocks in the future by building large foreign exchange reserves, reforming their financial sectors, etc.

Many of the G20 nations are currently making unilateral adjustments to shield themselves from future crises; this is a good and inevitable reaction. The G20 meeting, however, should focus on two systemic issues:

The lack of IMF lending capacity, and;
Negative spillovers among the unilateral responses, i.e. the fact that one nation’s solution can become another nation’s problem.

IMF lending capacity

For all but a handful of giant economies, the proper response to a global crisis requires outside help. As in the Asian crisis, IMF funds are insufficient to launch credible rescue operations. The current resources of the IMF would be sufficient to put together credible rescue packages for no more than a couple of emerging market countries if the crisis were to hit them with full force. Funds to increase the IMF’s war chest should at least in part be raised from the large emerging economies. After all, they would benefit the most from improved insurance. In exchange, they should also get greater say in the institution.

Negative spillovers from national responses

The second major shortcoming of existing crisis resolution mechanisms is the negative spillovers of national crisis responses.

This problem is not new either, but it has become more apparent as interdependencies have increased and the number of packages has multiplied. Western governments have stabilised their own banking systems, but often at the expense of emerging economies.

Generous guarantees attract deposits from, and trigger runs in countries without the resources to back up such guarantees. Bailouts often impose restrictions on the support banks can provide to their foreign subsidiaries. The result could be the undermining of banking systems in many emerging markets.

These discriminatory practices should, of course, be forbidden. The IMF already does so in countries that benefit from its programmes. But most countries now bailing out their banks and guaranteeing their depositors do not need the IMF. One solution would be to give the IMF, or the Basel Committee, broader jurisdiction, but for this to be credible emerging economies — the main victims of these practices — must be better represented in the design and enforcement of the rules.

Ultimately, even these seemingly small improvements in crisis resolution mechanisms may require bigger reforms.

The regional route

But one possibility would be to start to start at the regional level. The negative spillovers are largely a European problem due to the extraordinary penetration of West European banks into Eastern Europe. If not all of the EU can agree on non-discriminatory practices, let a subset of member states pursue deeper collaboration on crisis resolution under the option of enhanced cooperation introduced in the Maastricht Treaty 1992 and spelled out in the Nice Treaty 2003. Members would subject themselves to bailout rules and perhaps even need to have certain institutions, like bank resolution mechanisms, in place before joining. The European Commission guarantees that the club would be open to any state that subscribes to its basic objectives and rules.

The obvious global approach would be to redraft the articles of the IMF to bring them closer in line with the more constraining spirit of the text originally signed in

Bretton Woods. Unfortunately, such reforms are likely to be resisted by some.

An alternative would be to emulate the EU enhanced cooperation solution at the global level. In such a global club for crisis resolution the IMF could play a role similar to the one played by the European Commission in ensuring that the rules are respected. With a set of transparent requirements for joining, like the Maastricht criteria, this proposal could also help address remaining weaknesses in the institutions for crisis prevention in emerging — and mature — markets.

Authors

Erik Berglöf
Jeromin Zettelmeyer

Publication: VoxEU.org

Progress in Emerging Markets is Being Put at Risk

Erik Berglöf and Raghuram Rajan — Fri, 18 Jul 2008 12:00:00 -0400

Finance ministers of the Group of Eight leading economies have commissioned a study on the role of financial market speculation in recent oil price rises. In India, the regulator recently suspended trade in futures markets for several commodities, blaming speculators for price rises. The global credit crisis has made the financial sector vulnerable to populist attacks. The greatest casualty may be financial development.

In developed countries there is a sober search under way for appropriate regulatory and supervisory responses to the lessons learnt from the crisis. But in poorer countries politicians are unwilling to leave regulation to the regulators. The problems in the financial sector in the US allow populists in emerging markets not just to retread their critiques of financial markets but also to hold free enterprise and trade guilty by association.

These critics have a point, although it is misdirected. The world is still struggling to understand how to regulate sophisticated financial systems, but it has learnt more about how to manage less sophisticated ones. As a result, the achievements of emerging market financial systems over the past decade have been impressive. Since the Asian and Russian crises, financial regulation and supervision, as well as corporate governance and transparency, have all improved. Governments have made tremendous advances in managing their finances, while central banks have charted more independent policy. These advances help explain why we have not so far seen more collateral damage in emerging markets.

Indeed, the correct response in emerging markets to the global crisis should be to accelerate reforms that strengthen the financial and regulatory infrastructure, while taking care to avoid, as far as possible, the misaligned incentives that lie at the root of the crisis. Instead, important reforms are being reversed. In India, politically motivated mass loan waivers, which ruined credit culture in the past, are reappearing. A recent European Bank for Reconstruction and Development/World Bank survey showed deep distrust of many market institutions, including banks, and widespread nostalgia for the debilitating instruments of central planning in many countries of the former Soviet Union.

Many of the actions against the financial sector are proposed in the name of the poor, even though the true beneficiaries are the politicians themselves. Ironically, in much of the world the financial sector is at last reaching out to the poor, as improvements in technology and the growth in legal infrastructure promise new solutions to age-old problems. In Africa, banks and cell phone companies are drawing ever larger parts of the population into the payment system. Financial innovations such as crop insurance and micro-finance are promoting the diffusion of new seeds and fertilisers, and futures markets are facilitating hedging and price discovery. In India, a new law promises to aid the growth of grain warehouses and electronic warehouse receipts that will allow a farmer to store his harvest, and obtain finance against it, until he is ready to sell. It will probably do more for agricultural credit than years of state intervention.

In the industrialised economies of central and eastern Europe, which started their transformation into market economies essentially without financial systems, it took almost a decade for fragile banks truly to extend credit beyond the government, large companies and rich individuals. But now well-capitalised institutions, often backed by foreign parents, actively support restructuring of privatised enterprises, extend loans to risky small entrepreneurs and finance the mortgages of people wanting to buy their own homes. As a result of better financial access, in the Baltic states people trust their banks even more than their political and legal institutions.

All this progress may be at risk, especially if the global financial squeeze is longer and deeper than expected. Financial access will contract and with it the support for institutions and markets. Emerging markets will re-enact battles for their economic soul that we thought had been decided. It is important that industrial countries' governments do not fan the flames of antimarket sentiment by choosing the present time to reconsider their position on trade and capital flows. For the experience of previous crises suggests that the veneer of market institutions is thinner than we think.

Authors

Erik Berglöf
Raghuram Rajan

Publication: Financial Times

Western Banks Must Take Their Own Medicine

Erik Berglöf — Thu, 28 Feb 2008 12:00:00 -0500

For decades westerners have lectured central and eastern European policymakers on how to regulate and supervise, balance their budgets and stem credit expansion. Now they must deal with the consequences of a global crisis triggered because the west broke all the rules it preached. Worse, it is a crisis they cannot do much to resolve. They cannot even benefit from the bargains of distressed assets. Unlike some resource-rich neighbours in the east, they are not sitting on huge reserves that could bail out western institutions.

Much is at stake for these economies. Elsewhere countries have lost decades of development in a single crisis. Most eastern Europeans still have the Asian and Russian crises of 1997-98 fresh in their minds. They have been told they are vulnerable - in fact, according to the International Monetary Fund last year, the world's most vulnerable.

Some countries in the region are already feeling the pinch with higher interest rates and pressures on their exchange rates. Thanks to strong fundamentals and much-improved institutions, they have so far weathered the storm. But they are bracing themselves for a second wave of impact through lower growth in export markets.

The stakes are also high for western Europe - much higher than in 1997-98. These emerging economies are no longer just growing fast; they are also beginning to matter economically. Central and eastern Europe, including Russia, have surpassed the UK and the US jointly as the largest export market for the eurozone.

A new Europe is emerging with deeper economic and financial integration. Massive foreign investments have given rise to production patterns that have brought western and eastern Europe much closer together. Look at Volkswagen, which has invested heavily in the Czech carmaker, Skoda. Initially many critical components came from Germany, but local Czech suppliers upgraded and western subcontractors migrated to the Czech Republic. Today car components are an important Czech export.

Or take SEB. The Swedish bank acquired several Baltic banks. These highly profitable subsidiaries were first run as independent banks, but gradually activities have been integrated under the motto "One SEB". Today SEB, with two other Swedish banks, is in effect the monetary authority of the Baltic states, with main regulators and supervisors based in Stockholm.

This new Europe is highly competitive. While Chinese exports have gained ground in western European markets, so have those from central and eastern Europe; the only big product category in which Chinese producers have advanced at their expense is garments. Competitive labour costs, productivity improvements driven by foreign investments, and proximity to export markets explain the success.

We are seeing the dividends from the end of the cold war and more than a decade of painstaking European Union accession. The countries of central and eastern Europe have perhaps not always followed the straight and narrow path, but they have in the end, more or less, done everything they were asked to do. Unprecedented institutional progress has laid the groundwork for even more integration in the future.

But this integration is also what makes the new Europe more vulnerable. While the region's banks are in good shape, questions are emerging about the ability of the parent banks in western Europe to support their offspring. Deplorably, some parent banks are finding increasingly innovative ways to undermine local regulators and the rules the west has preached about, for example, capital adequacy and foreign exchange exposure.

All this leaves local policymakers with a sense of powerlessness. They have perhaps not always been model students, but they have opened up their economies, exposing them to international competition. Their state sectors still need reforming, but most budgets are holding up reasonably well, given the pressures for compensation after years of hardship. Still they know that they have yet to be tested in a sustained global downturn.

So far the economies of central and eastern Europe are doing remarkably well, but our crisis could become their crisis. For our common good we must quickly mend the global financial system. Meanwhile, to sustain growth in the new Europe we must repeat the old prescription of stronger regulation, vigilant supervision, fiscal discipline and careful credit expansion - and make sure we take the medicine ourselves.

Authors

Erik Berglöf

Publication: Financial Times

People In Transition: Assessing the Economies of Central and Eastern Europe and the CIS

Wed, 28 Nov 2007 12:00:00 -0500

Event Information

November 28, 2007
12:00 PM - 12:00 PM EST

The Brookings Institution
1775 Massachusetts Ave., NW
Washington, DC

After 17 years of transition to market economies in central and eastern Europe and the Commonwealth of Independent States (CIS), are people better off now than they were in 1989? Brookings Global recently hosted a presentation by Senior Fellow and European Bank for Reconstruction & Development (EBRD) Chief Economist, Erik Berglöf, on the 2007 Transition Report. The report offers unique insight into how transition has affected people's lives and attitudes and the progress to date on governance and financial reforms.

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View the report, Transition report 2007: People in transition

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Debunking America's China Syndrome

Erik Berglöf — Thu, 20 Apr 2006 00:00:00 -0400

LONDON After his visit to Washington, President Hu Jintao of China might wish he had stayed home. In all likelihood, he will have encountered an onslaught of accusations of currency manipulation, unfair trade and intellectual property rights violations

The alarm over China's economic ascension is akin to the China Syndrome, made famous by the 1979 film of the same name: the idea that a nuclear meltdown could penetrate the earth. It is strange that this fear of China is so strong in the United States. The impact is much greater and more uncertain for many other countries.

Let us start with Europe. In Italy, Portugal and most worryingly in Turkey, Chinese competition is threatening key industries like textiles and shoes. These countries are facing important choices about whether to move up the value-added chain in these industries or abandon them.

At first sight the prospects for the economies in Central and Eastern Europe look rosier. They are emerging from a period of remarkable institutional change driven by EU accession and rapid increases in productivity, after extraordinary inflows of foreign direct investment. And these economies are competitive: Their growth in exports to rich countries is strong, surpassed only by China.

But the long-term prospects for the Central and Eastern European economies are more uncertain. So far, catch-up growth has been confined to foreign- controlled companies and banks. Even more worrying, investments in research and development as a share of gross domestic product are at the same low levels as in the mid-1990s. Over the same period, China doubled this share, despite a higher GDP growth rate.

Despite huge political challenges, China's low cost advantage may well persist for decades. Unlike exports from Eastern Europe, where low wages are likely to be short-lived, especially for high-skilled labor, Chinese exports could retain their cost advantage for many years to come. The movement of hundreds of millions of underemployed workers from rural agriculture to urban manufacturing will take at least another decade.

The repercussions from China's growth are most immediate in Asia. Vietnam, like many other Asian countries, has been a successful exporter to developed markets. But now the country's exporters, cajoled for years by its "soft" planners into raising the value-added content of their output, are rapidly turning into suppliers of raw materials and semifinished goods for Chinese producers.

The effects extend well beyond Asia. In Brazil, drastic steps to open up the economy and improve the investment climate were designed to free the country from its dependence on raw material exports. But Brazilian manufacturing has now for several years been wilting under the stress of Chinese competition, while Brazil's iron mines have stepped up production to supply China's mushrooming steel industry.

Conventional wisdom argues that the more a country's economy differs from China's, the more it will benefit from China's economic growth. But the impact on a particular country also depends on whether the goods it produces complements or competes with those produced in China. Here the impact differs much more across countries, and ultimate outcomes will depend on the response of these countries. As the Nobel laureate Paul Samuelson shows in a recent article, if skills build up faster in China, the current competitive advantage of more advanced countries will erode.

Whether the China impact will be positive or negative in the long run depends on a country's ability to keep up the innovation gap. Australia, for example, opened up early to international competition and its flourishing high-end manufacturers have been exposed for decades to international competition. Countries that held on longer to protectionist policies are more likely to suffer.

Governments in emerging economies can respond by simply enjoying the ride on the Chinese wave, as many Asian countries are currently doing, hoping that it will be sustained in spite of China's growing pains and rising protectionism in developed markets. Or they could seek to maintain the innovation gap by attracting high-tech investments.

But the nature of the game changes as countries move up the value-added ladder and need to innovate rather than imitate. Building and transforming institutions requires political will to break loose from the fetters of entrenched interests. The gravitational pull of successful neighbors can help, as in Central and Eastern Europe, but as the Asian countries are learning the hard way, it may also limit your options.

Science has soundly refuted the China Syndrome. It is time to debunk its economic version. Despite the current debate in the United States, most of the fallout, positive and negative, from China's economic expansion will be in countries that are close to China in geography and in skills. For them, there is no time to wait for the movie.

Authors

Erik Berglöf

Publication: International Herald Tribune

President Hu Jintao's Visit: The Economic Challenges and Opportunities

Mon, 10 Apr 2006 00:00:00 -0400

Event Information

Falk Auditorium
The Brookings Institution
1775 Massachusetts Ave., NW
Washington, DC

On the eve of President Hu Jintao's long-anticipated visit to Washington, critical economic policy issues loom large for both the U.S. and China. Over the past two decades, China has transformed into a major economic power and continues to play a growing role in the global community. Its ascension is likely to be one of our most complex and vital foreign policy challenges for many years to come. Heated policy debates surround China on currency revaluation, the magnitude of global economic imbalances, the current U.S. account deficit, and the ongoing accumulation of U.S. financial securities by the Chinese central bank.

To examine these issues, the Brookings Global Economy and Development Center, the Center for Northeast Asian Policy Studies, and the China Initiative will co-host a discussion on the increasingly complicated economic relationship between the U.S. and China. A group of leading experts will participate: Wing Thye Woo, professor, University of California at Davis, and director, East Asia Program, Center on Globalization and Sustainable Development at Columbia University; Erik Berglöf, senior fellow, Global Economy and Development Center, Brookings, and chief economist, European Bank for Reconstruction and Development; and Jing Huang, senior fellow, China Initiative, Brookings. Lael Brainard, vice president and director of the Global Economy and Development Center will moderate the discussion.

A question and answer session will follow remarks.

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Monitoring European Deregulation 3 : Integration of European Banking: The Way Forward

Wed, 01 Jun 2005 00:00:00 -0400

Centre For Economic Policy Research 2005 103pp.

Five years ago, the Centre for Economic Policy Research (CEPR) produced a report on THE FUTURE OF EUROPEAN BANKING in which it concluded that European Union (EU) financial markets are fundamentally segmented. Much has happened since then. The euro has been firmly established in several Member States; stock markets have been through a boom and bust; and a number of Eastern European countries have joined the EU.

Perhaps most significantly of all, the European Union has launched its Financial Services Action Plan (FSAP). The goal of the FSAP is to create a single integrated market in financial services in Europe. This is regarded as critical for providing individuals with the best savings opportunities and companies witht access to 'deep and liquid markets for raising capital.' It is an extension of the principles of free trade to financial services and the same benefits associated with the elimination of barriers to trade are anticipated in financial services.

This report reviews the progress that has been made in eliminating regulatory and non-regulatory barriers to trade in banking services and the degree to which European banking markets have become integrated. It sets out some key policy recommendations that emerge from an assessment of the FSAP and suggests that the pursuit of financial integration raises fundamental questions about the ownership of banks that have not been adequately considered to date.

ABOUT THE AUTHORS

Colin Mayer

Erik Berglöf

Jordi Gual

Paolo Fulghieri

Pedro Pita Barros

Xavier Vives

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Towards Flexibility and Transparency in European Corporate Governance

Colin Mayer, Erik Berglöf, Marco Becht and Mathias Dewatripont — Sun, 01 Sep 2002 00:00:00 -0400

Centre For Economic Policy Research 2002 150pp.

Corporate governance is a central issue for both firms and financial markets in Europe today. A key question is to what extent should there be harmonization or diversity of codes and regulation across Europe? This report relies on theoretical and empirical evidence to analyse the correlation between desired corporate governance arrangements and the nature of economic activity. The authors investigate the way in which a mature institutional environment, like the US, has dealt with these issues. A central lesson from the US is that it permits diversity in governance arrangements, encourages competition between systems and requires transparency in information disclosure. The authors conclude with their own recommendations for achieving the desired objectives of flexibility and transparency.

ABOUT THE AUTHORS

Colin Mayer

Erik Berglöf

Marco Becht

Mathias Dewatripont

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Preparing the ECB for Enlargement : CEPR Policy Paper #6

Erik Berglöf, Francesco Giavazzi, Mika Widgren and Richard Baldwin — Fri, 01 Feb 2002 00:00:00 -0500

Centre For Economic Policy Research 2002 34pp.

As the European Monetary Union begins to add member nations, central bank governors of each new member will become entitled to a vote on the European Central Bank's (ECB) key decisionmaking body, the Governing Council. Euroland's interest-setting body will thus expand from its current 18 members to 30 or more. The Bank's decisionmaking structure has worked well so far, having proved its mettle in a series of challenges—the Russian and LTCM crises, the oil and food price hikes, the stock market tech-wreck and the U.S. economic slowdown. But is the ECB ready for the challenge of enlargement?

This report argues that the substantial increase of voters in the Governing Council will adversely affect the efficiency of the Bank's decisionmaking structure. The authors believe that this potential enlargement is a matter of urgent concern, and challenge the ECB and/or the European Commission to formulate a response to this challenge.

ABOUT THE AUTHORS

Erik Berglöf

Francesco Giavazzi

Mika Widgren

Richard Baldwin

Richard Baldwin is a professor of international economics at the Graduate Institute of International Studies, Geneva.

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Nice Try: Should the Treaty of Nice be Ratified? : Monitoring European Integration 11

Erik Berglöf, Francesco Giavazzi, Mika Widgren and Richard Baldwin — Thu, 01 Nov 2001 00:00:00 -0500

Centre For Economic Policy Research 2001 138pp.

Enlargement poses a number of institutional challenges to the European Union: institutions originally established for six member states need to be adapted to cope with an EU of between 20 and 30 members. This poses questions both about their size, and about the procedures for taking decisions. The eleventh Monitoring European Integration report will evaluate the reforms adopted at the Nice summit and highlight an number of structural and institutional reforms that were ignored for political reasons. It also argues that enlarging an insufficiently reformed EU may provoke crises whose solution might actually lead to a better EU. The authors conclude with an analysis of the emergency measure that should be taken, before enlargement occurs.

ABOUT THE AUTHORS

Erik Berglöf

Francesco Giavazzi

Mika Widgren

Richard Baldwin

Richard Baldwin is a professor of international economics at the Graduate Institute of International Studies, Geneva.

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Stuck in Transit : Rethinking Russian Economic Reform

Erik Berglöf and Romesh Vaitillingam — Sat, 01 Jan 2000 00:00:00 -0500

Centre For Economic Policy Research 2000 50pp.

On August 17, 1998, the Russian economy was finally punished for the delays in reforms, the lack of fiscal discipline and the overvalued exchange rate: the government was forced to devalue the ruble and default on its debt obligations. This report discusses the policy options for rebuilding the Russian economy in the light of those traumatic events, their underlying causes and the deep flaws they exposed in the process of reform. The Report draws on new work by economic researchers at the Russian European Centre for Economic Policy (RECEP) in association with a range of top international scholars. It explores the long-term policy challenges in key areas of the Russian economy, including fiscal and monetary policy, the labor market, the financial sector, industrial restructuring and the barter economy.