7th Annual NBP Conference
on the Future of the European Economy
The Evolving Role of Central Europe in the European Economy
Warsaw, 20 October 2017
The countries of Central and Eastern Europe in the process of economic convergence, the role of European integration in the process of restructuring of economies of the region, unconventional monetary policy, the sources of economic growth in the region, and the end of the EU financial perspective 2014-2020 – these were the issues discussed at the Annual NBP Conference on the Future of the European Economy, which was held in Warsaw on 20 October 2017.
This was the seventh time that Narodowy Bank Polski hosted economists from almost all over the world – central bankers, representatives from international financial institutions and academics. This year's conference entitled The Evolving Role of Central Europe in the European Economy consisted of four discussion panels, which were attended by, among others, representatives from the World Bank, the European Bank for Reconstruction and Development, the European Commission, the International Monetary Fund as well as the think-tank Bruegel and the OMFIF. The discussions focused on the challenges faced by CEE countries, which have been market economies for more than a quarter of century.
The Conference was opened by Professor Adam Glapiński, President of Narodowy Bank Polski, who referred to Poland as an example of successful transformation and encouraged the participants to discuss the challenges facing the economies in the region. In his opinion, among the challenges that require particular attention are ensuring long-term sources of growth, financing investment projects after 2020 and the consequences of the reversal of quantitative easing. At the same time, he expressed an expectation – which as he noted was subject to some risk – that the return of the ECB to more standard monetary policy measures should have a rather limited impact on capital outflows and exchange rate volatility in the region. Mr Andrzej Duda, President of the Republic of Poland, welcomed all the conference participants in a special letter, in which he underlined the importance of this forum for exchanging experiences in order to highlight the role of Central and Eastern Europe, including Poland, in the European economy. Mr Marek Kuchciński, Marshal of the Sejm, also conveyed his wishes for fruitful discussions. Special opening remarks were also delivered by Mr Guntram B. Wolff, Director of Bruegel – a European think-tank. In his view convergence continues to be a significant challenge for the region, even though Europe seems to have returned to the path of sustainable economic growth and gradually reduced unemployment after years of crisis. Mr Wolff believes that one of the major lessons from the economic crisis is that real convergence is just as important as nominal convergence, and the undermining of institutional stability in a member state may have adverse economic effects. He emphasized that EU member states wishing to join the euro area need to ensure in advance that they are properly prepared in terms of their political, economic and institutional development. Before becoming a member of the monetary union, countries wishing to join it should also consider joining the banking union.
During Session One, The Rise and Reintegration of Central Europe, the convergence process of the CEE economies with the Western Europe economies, which took place in the recent decades, was assessed and the role of European integration for restructuring and modernising the region was discussed. During the panel discussion it was stressed that the transformation of the countries of Central and Eastern Europe is a success story which was possible, among others, thanks to liberal economic reforms, access to the European single market, and EU funds. At the same time, however, the status quo is not satisfactory and one needs to confront the challenges related to searching for new sources of economic growth. The future development of the region depends, among others, on the quality of institutions, government credibility and the rule of law. Populist movements may impede development.
During Session Two, Unconventional Monetary Policy – a Risk to Central Europe’s Sustainable Growth?, the participants debated the impact of the ECB unconventional monetary policy on capital flows in Central and Eastern Europe and analysed the challenges for stable growth in the region arising from such a policy. Their opinion was that the spillovers of quantitative easing – which led to significant interest rate cuts in the euro area countries and provided liquidity for this banking sector – have proven to be moderate in the countries that do not use the single currency. Although inflation in the non-euro area countries continues to be low, the panel speakers believe that its level is mostly affected by low prices of commodities in global markets rather than by the QE programme. In addition, although it was originally expected that the non-euro area countries would experience large capital inflows because of the ECB unconventional monetary policy, this was not observed in any CEE country, except for the Czech Republic.
During Session Three, Sources of Growth in the Future, the audience’s attention was drawn to issues relating to potential sources of growth in the region, at medium to longer horizons, for example, developing structural competitiveness and competitiveness based on innovative products and technologies. In the coming years, CEE countries will have to meet the new challenges in order to maintain the current rate of economic growth. The panel speakers noted that new drivers of growth should be seen in, for instance, global expansion of companies from the region, developing industrial technologies, and high-level services. In contrast, demographic trends and limitations related to the availability of qualified employees on the market were considered to be major threats to growth in the region. It was underlined that public authorities may play an important role in the search for new drivers of economic growth through the building of a proper business environment.
The closing panel Crystal Ball – Beyond the End of EU Financial Perspective 2014–2020 was an attempt to answer the question how future changes to the EU budget as well as to the structural and cohesion policies will impact on the development and modernisation chances of the countries of the region that have been the biggest beneficiaries of EU funds. It was concluded that CEE countries face a challenge arising from the likely adjustment of the structure, size and nature of the support in the new financial perspective. In the opinion of the participants of the last panel, as a result one can expect a reduction in distributional activities in favour of a higher share of investment in the sources of economic growth.
Video recording of the conference: