Growth is strengthening and broadening across Europe, driven by buoyant domestic demand (Figure 1.1). Following a pickup in economic activity in the second half of 2016, the European economy accelerated further in the first half of 2017, with growth outcomes surprising on the upside in most countries.
The countries of Central, Eastern, and Southeastern Europe (CESEE) have made major progress in raising living standards over the past two and a half decades. This progress was supported by a radical transformation of their economies and institutions. Using case studies and empirical analysis, this chapter explores the role of internal and external factors, particularly accession to the European Union (EU), in supporting reforms to strengthen the effectiveness of the judiciary. The findings suggest that, beyond initial conditions, an enabling environment for judicial reforms was created by factors and policies that (1) improved the distribution of resources and opportunities, (2) upgraded rules and procedures to recruit and train civil servants, and (3) increased transparency and accountability. The European Union and the Council of Europe (CoE) acted as strong external anchors in catalyzing reforms. However, there were also some reversals of reforms, and the sustainability of reforms appears to depend mainly on domestic factors. These findings might offer insights in particular for countries aiming to join the European Union, but also for others seeking to improve the effectiveness of their judiciary.
Income convergence in the Western Balkans has stalled at low levels.1 Measured in purchasing-power-parity (PPP) terms, income levels in the region today are less than 30 percent what they are in the euro area (Figure 3.1). Equally noteworthy, the ratio has not changed since 2008. This is in sharp contrast to the experience of the New Member States of the European Union (EU), where relative incomes have continued to grow strongly since the global financial crisis and are now at nearly two-thirds those of the euro area. There are many reasons for this disappointing performance,2 including an unfinished transition, exemplified in some countries by a large swath of inefficient state-owned enterprises; shortcomings in the rule of law and the business environment; limited human capital, exacerbated in some countries by significant emigration of qualified human resources, or “brain drain”; and scant and poor-quality public infrastructure. While acknowledging these issues, this chapter focuses on another important plank for the region’s development: the health of its banking sectors. Implicit is the assumption that, even if reforms in the other areas bring about high-quality bankable projects, their potential, and with it overall economic growth, will not be fully realized if banks are not in a good position to fund them.
International Monetary Fund. External Relations Dept.
Jack Boorman, Director of the IMF’s Policy Development and Review Department, addressed the Berlin policy dialogue, examining ownership and IMF conditionality. Below are edited excerpts of his remarks.
The global economy went through a period of unprecedented financial instability in 2008-09, accompanied by the worst global economic downturn and collapse in trade in many decades. No country escaped the reach of this economic storm. The IMF played a leading role in helping the membership deal with the immediate challenges posed by the crisis and work toward a new, strengthened global financial system. To address these challenges, the Fund focused its efforts on (1) providing policy advice and timely financial support that met members’ needs, (2) analyzing what went wrong, with the aim of fortifying the financial system against a recurrence of crises down the road, and (3) assembling the building blocks of a new international financial architecture. At the same time, the crisis accelerated some elements of the Fund’s work program and redirected resources toward the following areas: advancing surveillance priorities, reforming the Fund’s lending framework, supporting low-income countries, increasing the Fund’s activities in the area of capacity building, reforming the Fund’s corporate governance, and augmenting the Fund’s resources. Work toward modernizing the IMF, which accelerated in FY2008 with the Fund’s restructuring exercise, continued in FY2009,1 and other institutional work focused on strengthening internal accountability and transparency, revamping the institution’s human resources function, and safeguarding the Fund’s finances and other operations, as well as putting the institution on a stronger financial footing.
On the heels of a major financial crisis that originated in advanced country markets in 2007, the global economy sank in 2008-09 into the deepest recession since World War II.4 Although the IMF’s 2008 Annual Report had highlighted the risks from the spreading financial crisis, the crisis advanced further and faster during FY2009 than expected, despite strong policy efforts in key economies. Emerging markets and lowincome countries, which had been relatively sheltered from financial strains owing to their limited exposure to U.S. mortgage-related assets, were drawn into the storm, as international credit markets, trade finance, and many foreign exchange markets also came under heavy pressure.
The extraordinary global financial crisis posed a host of serious policy challenges to most Fund members, as well as systemic risks to the global economy. The full attention of the IMF was directed toward addressing the policy challenges raised by the crisis, including helping governments prepare a full policy framework in countries already in crisis, and for other vulnerable countries, strengthening contingency planning and crisis preparedness and intensifying surveillance. In collaboration with other international bodies and standard setters, the Fund immediately identified the core macroeconomic and financial policy response needed to help minimize the economic and social costs of the crisis. It then worked to encourage early action, promoted dialogue within the membership, and started the critical task of examining the causes of, and gleaning lessons from, the crisis. The Fund helped members directly with financing and policy advice, placing greater emphasis on macrofinancial linkages, contagion risks, financial safety nets, and crisis preparedness and management. It also advised countries to provide support to economic activity wherever space for such support was available.
The protracted financial crisis accelerated and redirected the IMF’s ongoing work in the areas of lending and capacity building. This chapter describes the Fund’s efforts in FY2009 to continue the work begun in FY2008 to reform IMF governance, provide policy and financial support to low-income member countries, identify ways to deliver targeted and cost-effective capacity-building opportunities for members, and put the Fund on a sound, sustainable financial footing for the long term. (Efforts were undertaken as well in FY2009 to modernize the IMF’s human resources function, and those are discussed in Chapter 5.)