Focus on Transition

Editorial 
Recent Economic Developments
Developments in Selected Countries 
Jarko Fidrmuc, Cezary Wojcik and Stephan Barisitz

Studies

More "Pre-Ins" Ante Portas? Euro Area Enlargement, Optimum Currency Area, and Nominal Convergence 
Jarko Fidrmuc and Franz Schardax
In this paper, the authors apply the OCA theory to a future enlargement of the euro area by CEECs. Trade links and synchronization of business cycles have increased between several CEECs and EU countries recently. Apart from trade intensity, the authors show that intraindustry trade provides additional information to explain convergence in business cycles. Finally, the application of Frankel and Rose’s (1998) relation between the degree of trade integration and the convergence in business cycles to CEECs and EU countries predicts a comparable degree of business cycle harmonization of CEECs with EU countries as for current members for the medium term. Furthermore, the authors analyze the issue of preserving competitiveness and price stability within an enlarged EMU. They find that the development of competitiveness in selected CEECs between 1992 and 1998 differed significantly. According to the authors’ findings, the Balassa-Samuelson effect exerted a powerful influence on inflation rates in CEECs and is expected to continue to do so in a monetary union.

A Critical Review of Unilateral Euroization Proposals: The Case of Poland 
Cezary Wojcik
Some academics have proposed unilateral euroization as a solution to the alleged ineffectiveness of macroeconomic policies in the run-up to European Union accession and, furthermore, as a device to bypass fulfillment of the Maastricht inflation criterion. The European Union, in turn, has made it very clear that unilateral euroization does not constitute a viable option for the monetary integration of candidate countries and that it would run counter to the underlying economic reasoning of EMU in the (EC) Treaty. This study attempts to shed some light on the economic issues involved and thus to contribute to the discussion. As euroization is of a fairly empirical nature and its final costs and benefits depend on the distinctive features of the economy, the analysis focuses on the case of Poland. The potential benefits of unilateral euroization and the drawbacks of such a policy move are analyzed. The paper arrives at the conclusion that the often cited benefits of hypothetical unilateral euroization are much less clear-cut than they would appear to be at first glance, while the costs and risks are considerable. In general, a hypothetical euroization would be a risky venture for Poland that could delay the real convergence of the Polish economy rather than accelerate it.

Measuring Central Bank Independence in Selected Transition Countries 
Sandra Dvorsky
The paper measures the degree of legal and actual central bank independence (CBI) in five Central and Eastern European transition economies striving for EU accession, namely the Czech Republic, Hungary, Poland, Slovakia and Slovenia (CEEC-5). The degree of legal CBI is measured by applying the two most widely used indices, the Cukierman and the Grilli-Masciandaro-Tabellini (GMT) indices. Moreover, the turnover rate of central bank governors is used as a proxy to measure actual CBI. The paper gives an interpretation of computed results, comparing the findings with those of other authors and earlier calculations. Furthermore, the indices on legal and actual CBI themselves are critically reviewed, in particular against the background of the Maastricht Treaty requirements, which in practice constitute the driving force for any amendment of central bank laws in the CEEC-5. The paper concludes that the overall degree of legal CBI is comparatively high in all countries examined, while the measured turnover rates of governors do not seem to fully reflect the degree of actual CBI in the CEEC-5. A comparison of requirements imposed by the Cukierman index to the Maastricht Treaty requirements reveals potential implications for future measurement of legal CBI not only in the CEEC-5, but also in other EU accession countries, if the Cukierman methodology is applied. 

The Development of the Croatian Banking Sector since Independence 
Stephan Barisitz
Banking reforms in independent Croatia have proceeded relatively slowly compared to the most advanced central European countries, but they have recently gained momentum. The delicate geopolitical situation of the country, its involvement in armed conflicts on its own territory and in adjacent parts of former Yugoslavia, Croatia’s long-standing political isolation from the EU and other factors have not been conducive to structural reforms. The early years of independence featured major upheavals and losses for the banking business. In 1993, the authorities opted for a radical macroeconomic stabilization program that met with impressive success for some years. But a significant part of the banking sector was still ailing, and the government decided to bail out some of the largest banks by massive issues of government bonds. In the following years, some rapidly growing private banks attracted a large amount of foreign currency flowing back into the country. But imprudent lending brought them into difficulties, triggering a new banking crisis in 1998-99, which contributed to a mild recession. This time, the Croatian National Bank was equipped with enhanced legal authority and initiated bankruptcy proceedings in a number of cases. The year 2000 has seen a confluence of positive macroeconomic and structural changes, in particular a spate of transactions with foreign strategic investors purchasing stakes in leading banks. 

OeNB Activities
Completing Transition: The Main Challenges – The OeNB’s East-West Conference 2000  – Peter Backe
Lectures Organized by the Oesterreichische Nationalbank
The IMF’s Assessment of Current Economic Developments in Transition Economies – Some Comparisons – Thomas C. Dawson 
EU Enlargement: Current Questions – Albrecht Rothacher 
Catching Up in the Enlarged Euro Area: A Common Challenge for Monetary Policy – Nils Björksten 
EU Enlargement – Günter Verheugen 
Technical Cooperation of the OeNB with Countries in Transition 

Statistical Annex
Compiled by Andreas Nader
Gross Domestic Product 
Industrial Production 
Unemployment Rate 
Consumer Price Index 
Trade Balance 
Current Account 
Total Reserves Minus Gold 
Central Government Surplus/Deficit 
Gross External Debt 
Exchange Rate 
Official Lending Rate