Rethinking the Finance-Growth Nexus in Central, Eastern and Southeastern Europe (CESEE) and Beyond


In his opening remarks at the Conference on European Economic Integration (CEEI) 2013 today in Vienna, Ewald Nowotny, Governor of the Oesterreichische Nationalbank (OeNB), urged that financial fragmentation in Europe should be reversed to support growth, which is still stumbling. Against the background of improving but still heterogeneous economic developments in the European Union, Governor Nowotny called for a European rather than national perspective in dealing with the crisis-induced policy challenges. In particular, he pointed to one of the key institutional reform efforts currently under way in the EU, the establishment of a banking union and – as a major step in this direction – of the single supervisory mechanism (SSM). Nowotny stressed that it was in the common European interest that the SSM cover as many EU Member States as possible – including CESEE countries.

Turning to the central topic of the CEEI 2013, Governor Nowotny argued that one of the crucial lessons to be learned from the crisis is the need of gaining a more comprehensive understanding of large longer-term swings in asset prices and credit growth – a phenomenon commonly known as the financial cycle – and their interlinkages with and effects on the real economy. Prior to the crisis, most economists believed that further financial deepening strengthened long-term growth. Although this assertion is still valid, the global financial crisis has shown that the cyclical component of the finance-growth nexus has been widely underestimated across both Western Europe and CESEE. Correspondingly, the global financial crisis has unveiled the necessity to reconsider the way we measure sustainable output to ensure that policymakers are able to differentiate between welfare-improving financial deepening and costly boom-bust cycles. In this context, Nowotny argued that economic decision-making would benefit from the consideration of financial factors in economic analysis.

These and other issues are being discussed at the CEEI 2013 on Monday, November 18, and Tuesday, November 19, 2013, by high-ranking representatives of other European central banks and Austrian commercial banks as well as speakers from international organizations, financial institutions, the real economy and academia.

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