Abstract

The recovery in Europe continues, supported by strong policy action to contain sovereign debt problems in the euro area. In advanced Europe, lingering uncertainties and market pressures make for moderate and unequal growth, creating challenges for macroeconomic and financial sector policies. The REO also sheds light on the governance issues revealed by the crisis, arguing that better policy frameworks, in particular at the euro area level, promise a stronger Europe. For the first time, the REO devotes a separate chapter to the outlook for emerging Europe, where, after a deep recession, an export-led recovery is under way. However, the rebound is uneven across the region, and policymakers face the difficult challenge of dealing with the legacies of the crisis, while not hurting the recovery. Beyond the short term, the REO argues that the region will need to find new growth engines, as the capital inflows-driven and credit-fueled domestic demand boom needs to give way to more balanced growth. Indeed, the REO emphasizes that active fiscal policy and coordinated prudential measures are key to avoiding a repeat of the boom-bust cycle the region has just endured.

References

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    • Export Citation
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    • Search Google Scholar
    • Export Citation
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    • Search Google Scholar
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    • Search Google Scholar
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    • Search Google Scholar
    • Export Citation
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    • Search Google Scholar
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    • Search Google Scholar
    • Export Citation
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    • Search Google Scholar
    • Export Citation
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    • Search Google Scholar
    • Export Citation
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    • Search Google Scholar
    • Export Citation
  • Bakker, Bas B., and Anne-Marie Gulde, 2010a, “Searching for Stability,” Finance & Development, Vol. 47 (June), pp. 5051 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Bakker, Bas B., and Anne-Marie Gulde, 2010b, “The Credit Boom in the EU New Member States: Bad Luck or Bad Policies?” IMF Working Paper 10/130 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Barclays Capital, 2009, “CESE’s Banks Issues Acknowledged, Help on the Way—Problems Resolved?” (February 27).

  • Berger, Helge, and Stephan Danninger, 2007, “The Employment Effects of Labor and Product Market Deregulation and Their Implications for Structural Reform,” IMF Staff Papers, Vol. 54, No. 3, pp. 591619.

    • Search Google Scholar
    • Export Citation
  • Berger, Helge, and Volker Nitsch, forthcoming, “The Euro’s Effect on Trade Imbalances,” IMF Working Paper (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
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    • Search Google Scholar
    • Export Citation
  • Blanchard, Olivier, 1990, “Comment on Giavazzi and Pagano (1990),” NBER Macroeconomics Annual (Cambridge, MA: National Bureau of Economic Research), pp. 111122.

    • Search Google Scholar
    • Export Citation
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    • Search Google Scholar
    • Export Citation
  • Citigroup, 2008, “Western Europe Banks—Eastern Europe’s Problem” (October 13).

  • Claessens, Stijn, Ayhan Kose, and Marco E. Terrones, 2008, “What Happens during Recessions, Crunches and Busts?” IMF Working Paper 08/274 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Deutsche Bank, 2008, “CEE Banking Systems—Risks of a Systemic Banking Crisis?” (October 15).

  • Economic Intelligence Unit, 2009, “Can Eastern Europe Avoid a Meltdown?” The Economist (April).

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    • Search Google Scholar
    • Export Citation
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    • Search Google Scholar
    • Export Citation
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    • Search Google Scholar
    • Export Citation
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    • Search Google Scholar
    • Export Citation
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    • Search Google Scholar
    • Export Citation
  • Fonteyne, Wim, and Johan Mathisen, forthcoming, “Integrating East and West,” IMF Working Paper (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Giavazzi, Francesco, and Marco Pagano, 1990, “Can Severe Fiscal Contractions Be Expansionary?” NBER Macroeconomics Annual (Cambridge, MA: National Bureau of Economic Research), pp. 95111.

    • Search Google Scholar
    • Export Citation
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    • Search Google Scholar
    • Export Citation
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    • Search Google Scholar
    • Export Citation
  • International Monetary Fund (IMF), 2009a, “Fiscal Rules: Anchoring Expectations for Sustainable Public Finances”, IMF Staff Paper (Washington).

    • Search Google Scholar
    • Export Citation
  • International Monetary Fund (IMF), 2009b, Regional Economic Outlook: Europe (Washington, May).

  • International Monetary Fund (IMF), 2009c, Regional Economic Outlook: Europe (Washington, October).

  • International Monetary Fund (IMF), 2010a, “A Fair and Substantial Contribution by the Financial Sector—Final Report for the G-20,” (June 2010). Available via the Internet: http://www.imf.org/external/np/g20/pdf/062710b.pdf.

    • Search Google Scholar
    • Export Citation
  • International Monetary Fund (IMF), 2010b, “Euro Area Policies: 2010 Selected Issues Paper”, IMF Country Report 10/222 (Washington).

  • International Monetary Fund (IMF), 2010c, “G-20 Mutual Assessment Process—Alternative Policy Scenarios,” G-20 Toronto Summit, June 2010 (Washington). Available via the Internet: http://www.imf.org/external/np/g20/pdf/062710a.pdf.

    • Search Google Scholar
    • Export Citation
  • International Monetary Fund (IMF), 2010d, Global Financial Stability Report (Washington, October).

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    • Search Google Scholar
    • Export Citation
  • Jaumotte, Florence, forthcoming, “The Spanish Labor Market in a Cross-Country Perspective,” IMF Working Paper (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Kinoshita, Yuko, forthcoming, “Sectoral Composition of Foreign Direct Investment and External Vulnerability in Eastern Europe,” IMF Working Paper (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Laeven, Luc, and Fabian Valencia, 2010, “Resolution of Banking Crises: The Good, the Bad, and the Ugly,” IMF Working Paper 10/46 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Merrill Lynch, 2008, “A Review of Exposures to CEE,” (October 27).

  • Mitra, Srobona, and Esther Pérez Ruiz, forthcoming, “Labor Market Reforms That Could Make the Recession Less Prolonged,” IMF Working Paper (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Morgan Stanley, 2008, “Emerging Value Traps: Too Early to Step Back in,” (November 4).

  • Purfield, Catriona, and Christoph B. Rosenberg, 2010, “Adjustment under a Currency Peg: Estonia, Latvia, and Lithuania during the Global Financial Crisis 2008–09,” IMF Working Paper 10/213 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Rahman, Jesmin, 2010, “Absorption Boom and Fiscal Stance: What Lies Ahead in Eastern Europe?” IMF Working Paper 10/97 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Rosenberg, Christoph B., and Robert Sierhej, 2007, “Interpreting EU Funds Data for Macroeconomic Analysis in the New Member States,” IMF Working Paper 07/77 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Rosenberg, Christoph B., and Marcel Tirpak, 2008, “Determinants of Foreign Currency Borrowing in the New Member States of the EU,” IMF Working Paper 08/173 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Velculescu, Delia, 2010, “Some Uncomfortable Arithmetic Regarding Europe’s Public Finances,” IMF Working Paper 10/177 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Vienna Institute for International Economic Studies (WIIW), 2010, “Whither Growth in Central and Eastern Europe? Policy Lessons for an Integrated Europe,” A Policy Report by the Bruegel-WIIW Expert Group on Eastern Europe (Vienna, April).

    • Search Google Scholar
    • Export Citation
  • Wasmer, Etienne, and Alexandre Janiak, 2008, “Mobility in Europe: Why It Is Low, the Bottlenecks, and the Policy Solutions,” European Economy, Economic Papers No. 340 (Brussels: European Commission).

    • Search Google Scholar
    • Export Citation