Crisis Management in the EU and in Hungary
GKI Conference 26 March 2013
Alex Lehmann,
Lead Economist, EBRD
Key points
• Funding environment will remain challenging, not just from foreign banks but also in terms of FDI
• Eurozone growth environment of course as well. Cyclical recovery in CEE economies the weakest in transition history.
• Depressed investment volumes the key worry for trend growth medium term.
• Shift to domestic demand, and scaling up in technology content of exports
• Fiscal policy not an option; monetary easing now exhausted, greater exposure to international bond markets a much greater vulnerability
• Structural reforms hence the key tool for crisis management: credible, comprehensive and designed to illicit the investment response.
Structural reform priorities in the CEE: choice picks of OECD and EBRD
Slovak Republic: OECD
• Education system
• Labour force mobility and participation rates
• Reduce barriers to competition and entrepreneurship
• Innovation support framework
Poland: OECD
• Public ownership, product market competition
• Labour taxes and overly generous social support schemes
• Transport, communication and energy infrastructure
• Education system
Source: ‘Going for Growth’, OECD, 2013, and EBRD Transition Report, 2012.
… and EBRD
• Education system: skills shortages
• Private pension funds
• Private infrastructure funding/PPPs
… and EBRD
• PPPs
• Regulation to sustain banking sector integration
• Local capital market development
… and in Hungary
OECD
• Reduce taxes on labour
• Labour force participation, esp. at old age
• Education system, esp. tertiary
• Business regulation and competition, esp. network industries
• Public sector efficiency
Source: ‘Going for Growth’, OECD, 2013, and EBRD Transition Report, 2012.
… and EBRD
• Stable regulation and tax regime for banking sector
• Labour force participation
• Credible macroeconomic policies and outlook
Launching structural reforms in the midst of a recession?
• Involve all stakeholders
• Get buy in from financial sector to stimulate investment response
• Medium term programme and credible communications
• Design package to off-set individual elements: e.g. product market competition and labour market liberalisation