Conferences of Ezoneplus at a Glance
2nd Official Workshop
Bologna, 5.-7. July 2002
From July, 5-7, the Ezoneplus team organised in Bologna an academic workshop on different markets in CEE as well as in Euroland, which will be affected by EMU-enlargement. Below, we present the major outcomes.
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The discussion on Capital Markets, based on a contribution by Thomas Meyer of the FU Berlin´s Centre of Excellence, focused primarily on changes already achieved in CEE and on the need to foster financial development, since mostly they are small, less efficient, and depending on foreign capital. The Finnish participants from the Government Institute for Economic Research (VATT) pointed out that CEECs now face those same challenges the Nordic countries had to cope with 15 years ago. Thus, a strong governmental grip on the banking system may be adequate. However, the participants could not agree on whether specific case studies may be of value to future trends at all.
Concerning the section Trade and FDI, José Caétano and Aurora Galego from the University of Évora outlined that CEECs´ dependence on trade has been increased during transition. Although the potential in imports has been largely exhausted, there is still some scope for export expansion, especially because CEECs continue to profit from comparative advantages in labour and natural resource intensive commodities.
Bridging the gap to capital markets the discussion showed that, although having changed significantly over time, up to now foreign capital inflows cannot be considered to have ´crowded out` domestic investments. However, due to being more unilateral directed than trade flows, assessing future FDI movements and implications remains difficult.
During the session on Labour Markets Jaakko Kiander and Risto Vaittinen from VATT and Tiiu Paas from the University of Tartu stressed that for applicant countries EMU-membership will bear the prospect of income transfers as well as free labour mobility (depending on income differences). Despite of this, the most problematic factor of systemic transformation in the CEECs stems from migration to the current EU members, most prominently to Germany and Austria, accounting for up to a total of 350.000 people per year after enlargement. Since most of these people are likely to be well-trained workers, current EU members are supposed to benefit from this possible ´brain drain`. To fight a prospective decrease in labour market flexibility, politics must focus on labour legislation, trade unions, wage flexibilty, workers flows and job flows.
Scholars of the University of Bologna (Renzo Orsi, Fabrizio Iacone, Riccardo Rovelli, Roberto Golinelli) , during the panel session on Exchange-Rate Regimes, discussed inflation and possible costs of the eventual surrender of the currency. Regarding inflation, most participants agreed upon the fact that exchange rates are the most vital instrument to fight price increases.
However, by aiming at the stabilisation of an economy the risk of a tight monetary and fiscal policy may increase, which in effect could translate into costs in terms of unemployment. Thus, two crucial questions can be raised:
1. Should the CEECs join the necessary ERM II-mechanism as soon as possible or not? Although some of them already introduced policies to be compatible with the ERM II statutes (Estonia and Hungary), others´ aims are opaque.
2. If costs do rise, who is going to pay for it?
Other issues being discussed included possible effects on the eurozone itself once the CEECs become full members. Most experts considered the Stability and Growth Pact to fulfil its stabilising role sufficiently. The contributions to the Bologna Workshop are available as Ezoneplus Working Papers 5 to 10 that can be downloaded from Ezoneplus Website.