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Conference on European Economic Integration 2014 : The Rebalancing Challenge in Europe – Perspectives for CESEE

The Conference on European Economic Integration (CEEI) 2014, which the Oesterreichische Nationalbank (OeNB) hosted in Vienna on November 24 and 25, 2014, focused on the rebalancing challenges in Central, Eastern and Southeastern Europe (CESEE) and the euro area. The presentations and debates offered interesting insights, for instance: (1) The EU convergence process has slowed down but might be revived by closing the investment gap and promoting reindustrialization. (2) Sequencing private and public balance sheet repair is critical in a balance sheet recession. Income inequality can be both the source and the consequence of macroeconomic imbalances. (3) The current external rebalancing in the euro area periphery and in CESEE may be structural rather than cyclical even if it is import and demand driven. (4) The first choice when it comes to easing the cost of rebalancing in terms of growth and employment would be fiscal policy, but fiscal policy is legally constrained. (5) Monetary policy is the second choice, but it is less effective at the zero low bound. (6) Structural reforms such as the recent advances in banking sector regulation and coordination might be less desirable in the short term than in the long term. Around 420 participants from 35 different countries attended the CEEI 2014 to listen to presentations and discussions by high-ranking representatives of central banks, international organizations, the business and banking sectors, and academia. In his opening remarks, OeNB Governor Ewald Nowotny referred to three important anniversaries: 25 years since the fall of the Berlin Wall, 15 years since the introduction of the euro and 10 years since the (so far) biggest round of EU enlargement. He affirmed that for an overwhelming majority of Europeans, these watershed events implied a marked rise in living standards and the level of freedom. Enlargement was a “win-win situation” for the acceding countries, the EU as a whole and Austria with its strong links to the CESEE region. As Nowotny pointed out, however, “the crisis has revealed that the previously remarkable catching-up process is neither automatic nor irreversible.” In some cases, a strengthening industrial base helped economies escape the dilemma of either chronic disequilibria or contractive deleveraging. The 18% decline in investment levels across the EU-28, however, has negative consequences for present and future growth. Nowotny commended the countries at the Southern and Eastern European periphery for improving their external competitiveness but regretted that the price for this progress was high unemployment, stating that the macroeconomic environment will have to improve all over Europe to make rebalancing successful. Nowotny dismissed the popular presumption that “There is no alternative,” supporting the investment package proposed by the new European Commission. Compiled by Andreas Breitenfellner, Susanne Steinacher and Julia Wörz1