East-West Conference 2003

The second day of the East-West Conference of the Oesterreichische Nationalbank (OeNB) is dedicated to the key driving factors behind the economic success of EU enlargement. In his opening remarks, OeNB Governing Board member Josef Christl underlined the strong economic ties that have been established between the euro area and the acceding countries. Above all Austrian companies, notably Austrian banks, have seized the business opportunities arising in the transition process and have actively contributed to the structural changes in Central and Eastern Europe (CEE). 

By now, Austrian banks are among the largest investors in this area. In the Czech Republic, in Slovakia and in Croatia they hold market shares of about 30%. CEE-based subsidiaries in fact already account for around one quarter of the consolidated pre-tax profits of Austrian banks. 

The acceding countries have come a long way in bank restructuring, recapitalization and privatization. At the same time, substantial differences remain with regard to the degree of financial intermediation, which continues to be clearly below average EU levels. 

Now that market mechanisms have been established virtually throughout all transition countries, the most important role of the state is to implement effective supervisory structures. While the countries in question have largely adopted the necessary statutory frameworks, the monitoring of compliance needs yet to be refined. Given the huge transformation observed in financial markets, the need for public action is especially pronounced for financial market authorities. 

However, the responsibility for ensuring stable conditions does not rest with the public authorities alone; economic policies must also be adequate. In this respect, Director Christl emphasized that the Stability and Growth Pact continues to be an important tool. Sound public finances are a key precondition for stable economic growth not only in Western Europe but in the acceding countries as well. Following EU accession at the beginning of May 2004, the new Member States will also be subject to regular reviews by the European Commission – for instance, of whether they meet the 3% deficit ceiling (which is currently breached by a number of acceding countries). 

With a view to future monetary integration, participation in the exchange rate mechanism ERM II will play a key role. The ensuing reduction of exchange rate fluctuations would foster stabilization in numerous areas; for example, import prices would become less volatile. Thus, participation in ERM II can be expected to contribute to the process of both real and nominal convergence in the medium term. 

Overall, the conference is aimed at taking stock of the convergence and integration achieved to date in the process of EU enlargement and at assessing the potential of a larger Europe. Supplementing yesterday’s assessment of renowned U.S. economist Barry Eichengreen on which exchange rate policy to pursue on the road to joining the euro area, today Charles Wyplosz, economist teaching in Geneva and author of numerous books, will sketch the future of a united Europe. The conference will conclude with a panel discussion on whether it will be effective or necessary to fine-tune the coordination of economic policies further in order to fully exploit economic potentials.