The View from Europe

Recently, Chevy Chase Trust was invited to attend the prestigious Euromoney Central and Eastern Europe Forum as a delegate. This event provides a forum for the region’s central bankers, finance ministers, budget policymakers, regulators, corporations and international investors to discuss what the Central and Eastern European region needs to do to continue the revival of their economies and markets.

The Forum was kicked off with the keynote address by Governor of the central bank of the Republic of Austria, Ewald Nowotny, who is also a member of the governing council of the European Central Bank. He offered several key observations: 1) At a recent Bank for International Settlements gathering, the tone among the central bank governors was the most optimistic he has seen in recent times and specifically that the view on Europe had improved; 2) growth in the European Union was improving and that potential of upside to the 1.1% forecasted growth was possible in 2014 and the only countries expected to demonstrate negative growth for the year would be Cyprus and Slovenia; 3) current accounts were being rebalanced, but it had been a mistake to ignore the current account deficits in the years preceding the financial crisis; and 4) the big news item, as reported around the globe by the Wall Street Journal, Chicago Tribune, and Market News International, being that there was no real prospect for deflation despite current warnings by the IMF’s Christine Lagarde.

Other policymakers discussed concerns surrounding Fed tapering. Hungarian central bank deputy governor Adam Balog told the conference that the central bank analyzed Fed tapering every week over the last year. The Deputy Prime Minister for Economic Development in Bulgaria, Daniela Bobeva, noted that countries needed to be differentiated from the region: not everyone will be affected equally and different responses will be needed by each country. Concurring with this was Christian Popa, Romania’s deputy central bank governor, indicating that countries having both manageable and flexible financing will find the tapering to be non-threatening, unlike last summer’s region-wide panic-like exodus. Reiterating a theme prevalent throughout the conference, Popa noted the importance of reducing current account deficits and implementing structural reforms. Czech Republic and Poland central bankers joined in dismissing a large impact from Fed tapering on their economies.

The final panel cautioned that the region’s economies risked sliding into the sclerosis afflicting the rest of the continent. Eurobank Group’s chief economist and Head of Economic Research Dr Gikas Hardouvelis said that CEE countries needed to work hard to increase R&D and innovation in order to carve out their future in an increasingly competitive global environment.