The World after the Crisis: S.E.E Challenges & Prospects
3rd South Eastern Economic Research Workshop, Bank of Greece, Athens
November 19, 2009
Abstract:
Two and a half years have passed since the beginning of the financial crisis in July
2007 but the economic crisis it caused is still with us. Regulators counteracted the crisis
with drastic monetary and fiscal expansion and are currently designing a stricter and more
stable future financial system that would ensure less wild economic fluctuations and,
hopefully, no repetition of the adverse events we live today. Over the next decade, as
economic and political power shifts to the developing world, global growth will slow down
due to higher real interest rates, public and private deleveraging and a natural decline of
global imbalances.
The SEE region imported the crisis at the end of 2008 through a sudden shrinkage of
capital inflows and a concomitant collapse of export markets, which caused significant
output losses and immense pressure in local asset and currency markets. The region was
found overheating with rising current account deficits, inflation and huge credit growth,
partly financed by foreign inflows. Yet, the SEE financial system proved stable and well
capitalized and domestic regulators acted swiftly to avert a total collapse of output. While
the recession is coming to an end, it is difficult to see a rapid future expansion without a
simultaneous departure from the old demand-driven model of growth.
There is a crying need in SEE for a more balanced growth model and an emphasis on
improving the domestic savings rate, shifting demand from consumption to investment,
focusing more on export markets and fostering domestic competitiveness and total factor
productivity via the rule of law, the quality of institutions, domestic infrastructure, as well
as the matching of human capital development and job training with the modern needs of
an increasingly globalized world economy. The current crisis can be turned into an
opportunity for change.
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