Skip to main content
Report

Accession of CEE-States to the EU

and

ABSTRACT

The expansion of the market economy sphere is the core phenomenon of globalization. The pat-tern of integration of emerging and former state-planned economies into the world economy is quite different. This paper focuses on the CEE economies acceding to the EU (15) and investi-gates two aspects. Up to the end of the decade these countries will be fully integrated in the biggest and one of the most developed economic areas. The structural adjustment is the major challenge to be met by an adequate economic policy. The first aspect focuses on the Balassa-Samuelson effect, which in the literature is described as one of the obstacles for the transition process after the introduction of the Euro in the CEE countries, because higher inflation rates can no longer be outweighed by a currency adjustment. The empirical investigation discloses that the traditional Balassa-Samuelson assumptions do not hold and that the inflation induced by productivity gains in the tradable goods sector is no longer an obstacle for the participation to the monetary union. The second aspect focuses on the integration of the CEE countries into the world economy, which cannot be based on low-wage competition, because they will be full members of the EU. The structure of foreign trade of the CEE countries and the EU are com-pared. The latter is used as a benchmark and differences make visible the necessity of a struc-tural change. In recent years the competitive pressure for CEE countries has strongly grown. Exchange rate variations have become a major challenge, in particular the depreciation of the Renminbi, the PR China’s currency. In combination with an indigenous deflationary tendency low-wage production of commodities in CEE countries, an important activity before the Iron Curtain broke down, has come under pressure by growing imports from the PR China. This de-velopment incorporates the threat to distort the fragile transition process, and the intensity of the problem is linked to the Chinese foreign exchange regime. It is suggested to give up the peg to the US-$ and link the Renminbi to a basket of globally important currencies to take into ac-count the multilateral trade relations.

Get daily updates from Brookings