Eastern European EU Member States Research Articles

Coherence of the business cycles of prospective members of the euro area and the euro area business cycle

Is it beneficial for Central and Eastern European EU Member States to join the euro area? To answer that question, the coherence of the business cycles of six EU Member States and the euro area is analyzed. These countries recently joined (Croatia) or are supposed to join the euro area in the (near) future. The analysis utilizes the synchronicity and similarity measures proposed by Mink et al. (2012). Whereas the synchronicity measure captures whether output gaps have the same sign, the similarity measure identifies differences in cycle amplitudes. It is observed that the business cycles of several countries, notably Romania and Hungary, are out of sync with that of the euro area. The output gap similarity and synchronicity measures for Croatia are also fairly low. However, this also holds for some countries in the euro area.

Analysis of banking sector stability using the taxonomic measure of development

Motivation: The stability of the financial system means that the entire system performs its key functions properly. It is a prerequisite for sustained economic growth. Maintaining stability of the banking sector is of particular importance for the firmness of the financial system, as it plays a key role in financing the economy, transmission of monetary policy impulses, and monetary settlements. Therefore, in the context of financial security, it is extremely important to analyse the banking stability. Aim: Assessment of the stability of banking sectors of the Central and Eastern European EU Member States and a comparative analysis and classification of the CEE countries in terms of selected indicators characterising the stability of their banking sectors using the model method of linear ordering, i.e. the Hellwig’s method. The analysis will verify the thesis whether banks in countries of lower national income (according to the World Bank’s classification) perform worse in terms of stability than banks in countries of higher national income. To illustrate the situation in the field of banking sector stability more clearly, the authors presented the dynamics of all variables considered from the point of view of the analysis (dynamics were presented for 2015 and 2019 in relation to the base year, which was assumed to be 2011). Results: A multivariate analysis was used in the comparative analysis of banking sectors development in Central and Eastern Europe. For this purpose, the development pattern method was used so that a synthetic indicator of the development of the banking sector with regard to its stability was calculated. Based on the proposed measure of development, a ranking of the Central and Eastern European EU Member States was prepared for 2019. It should be emphasized that the thesis outlined in the article was not empirically confirmed, namely, banks from countries of lower national income (according to the World Bank classification) did not have much worse results than banks from countries of higher national income.

Addressing the consequences of Russian aggression towards Ukraine: The case of affordable housing in Central and Eastern Europe

As a result of Russian aggression towards Ukraine, lowering European dependence on Russian energy has become a priority for the EU. Policy responses that address energy security have the potential to accelerate the EU’s path to carbon neutrality as well as to boost the funds available for energy efficiency improvements. However, due to the escalating cost of living, many fear energy policy changes may put even more pressure on those who are already struggling to pay their bills. This article argues that for geographic, historical and political reasons, the affordable and social housing sector in Central and Eastern European EU member states is the place to start with the implementation of new energy policy goals. These countries could use funds newly made available to address the needs of Ukrainian refugees while easing the housing problem that this region has been tussling with for decades.

«Интеграционный проект» Э. Макрона и восточноевропейские государства – члены ЕС

The article analyzes the attempts of French president Emmanuel Macron to promote his «European project», which implies the achievement of the «sovereignty» by the Union in the industrial, scientific and technological, food and defense fields, and the attitude of the Eastern European states to this project. It is noted that thanks to the cautious but real support of Germany under A. Merkel, he managed to achieve some success. The new Chancellor O. Scholz is also generally committed to «European integration», particularly in the economic sphere. But the idea of a «European autonomous defense», advocated by E. Macron, does not arouse enthusiasm among the German elites, since after J. Biden comes to power in the United States, they are counting on the restoration of the old transatlantic ties. For this reason, progress in this direction is questionable.However, the main difficulties in the implementation on the «project» of E. Macron are linked to the ambiguous position of the Eastern European EU Member States. Although not all of these states are members of the «Eurozone» or the Schengen agreements, generally they follow the course of common economic integration. At the same time, they critically perceive the concept of «multi-speed Europe», promoted by E. Macron, and hostilely – the idea that the French-German «tandem» should become the «motor» of the integration process. The author also recalls their stubborn resistance to the implementation of a common migration policy. But France’s Eastern European partners are especially wary or even hostile towards E. Macron’s initiatives aimed at promoting the above-mentioned «European autonomous defense». They fear that the implementation of such initiatives will contribute to the weakening of the NATO bloc, which they see as the most important guarantee of their security in the face of the «Russian threat». Obviously, their attitude will continue to have a negative impact on the prospects for such a «European autonomous defense».

Determinants of substantial public debt reductions in Central and Eastern European Countries

Government debt development is a timeless issue in economics that has gained even more attention in light of the global financial crisis and the Covid 19 pandemic crisis. The following paper uses several specifications of a logistic probability model to examine the key determinants underlying substantial public debt reductions in Central and Eastern European EU Member States for the period 1996–2020. The results suggest that fiscal adjustments are more likely to be successful in reducing public debt if they are based on expenditure cuts rather than revenue increases. In this context, cuts in social benefits and government employee compensation prove to be particularly effective. In addition, favourable economic growth rates increase the probability of a substantial reduction in government debt.

DO CLUSTERS AND BUSINESS ENVIRONMENT FOSTER NATIONAL COMPETITIVENESS IN BULGARIA? A COMPARATIVE STUDY WITH EU COUNTRIES

The business environment and cluster development in given economy have a defining role for the development, maintenance and enhancement of national competitiveness and this has been proven repeatedly in theory and in practice. Cluster development in Bulgaria started with some delay compared to the other European countries. In Bulgaria, companies even though being a member of a cluster, they do not fully realize their advantages in terms of competition and joint efforts. The reason is that clusters in Bulgaria are still in a process of building efficient internal interactions between their members. The study focuses on the way and the extent the state of business environment and cluster development foster national competitiveness in the case of Bulgaria and selected Central and Eastern European EU member states countries. For the purposes of the study of business environment the Diamond Model of Michael Porter is employed and it is carried out through the World Economic Forum’s indicators of Global Competitiveness Reports. Both, business environment and the level of cluster development in Bulgaria are evaluated in a comparative context with selected Central and Eastern European EU member states countries. The results of the study show domination of limitations and obstacles to enhancing national competitiveness. We may conclude that the state of the business environment, the level of cluster development, and their interaction are not very favourable for more intensive competitive development of Bulgarian economy.

Issues of Democratic Development and Construction of National Identity at the End of the Age of Imitations: Editorial Introduction

In the article, the guest editor Piotr Dutkiewicz and editor-in-chief Yuriy M. Pochta introduce the current issue of the journal, interpreting cross-cutting topics such as democratic development and the construction of national identity in the societies of the East and the West. They believe that the most appropriate heuristic explanation for these issues today is the idea that after the end of the Cold War the hopes for the final victory of the liberal democratic project on a global scale ended in disappointment. The end of history never took place, just like the victory of communism did not take place previously. All these years we have been witnessing an imitation of liberalism, the era of which is already over. There is currently a global revolt against the liberal imitation imperative. From this point of view, there is a great interest in articles devoted to Russian-Turkish relations, the place of the Central Asian states in the international rankings of democratic development, the evolution of the political development of the Lebanese Republic, the formation of democratic political regimes in such Eastern European EU member states as Poland and Hungary, the role of parties in the political life of Great Britain and Nigeria, as well as such theoretical and methodological problems of political science as the processes of forming future political leaders, methodology of the study of GR-management and approaches to the study of the political and psychological characteristics of the heads of Russian regions. In general, this issue of the journal pictures the current state of democratic development of Western and non-Western countries in the context of globalization, which is at the stage of transition from American monopolarity to multipolarity, from imitation of the Western liberal-democratic project to the search for its own development projects. The authors believe that from the point of view of Russia and its interests the materials of this issue allow for outlining the prospects for further research on ways to build the most effective relations with world and regional powers, the possibilities of protecting its sovereignty and its geopolitical interests, and the mechanisms for forming the Russian post-Soviet identity at the national and regional levels.

Reviewing Pillar 2 regulations: credit concentration risk

PurposeThis paper aims to analyse the recent changes to the Pillar 2 regulatory-prescribed methodologies to classify and calculate credit concentration risk. Focussing on the Prudential Regulation Authority’s (PRA) methodologies, the paper tests the susceptibility to bias of the Herfindahl–Hirscham Index (HHI). The empirical tests serve to assess the assumption that the regulatory classification of exposures within the geographical concentration is subject to potential misuse that would undermine the PRA’s objective of obtaining risk sensitivity and improved banking competition.Design/methodology/approachUsing the credit exposure data from three global banks, the HHI methodology is applied to the portfolio of geographically classified exposures, replicating the regulatory exercise of reporting credit concentration risk under Pillar 2. In doing so, the validity of the aforementioned assumption is tested by simulating the PRA’s Pillar 2 regulatory submission exercise with different scenarios, under which the credit exposures are assigned to different geographical regions.FindingsThe paper empirically shows that changing the geographical mapping of the Eastern European EU member states can result in a substantial reduction of the Pillar 2 credit concentration risk capital add-on. These empirical findings hold only for the banks with large exposures to Eastern Europe and Central Asia. The paper reports no material impact for the well-diversified credit portfolios of global banks.Originality/valueThis paper reviews the PRA-prescribed methodologies and the Pillar 2 regulatory guidance for calculating the capital add-on for the single name, sector and geographical credit concentration risk. In doing so, this paper becomes the first to test the assumptions that the regulatory guidance around the geographical breakdown of credit exposures is subject to potential abuse because of the ambiguity of the regulations.

Is Catching Up Possible? The Example of Central and Eastern Europe

In the age of “transnational monopoly capitalism,” the hierarchy of nations along the axial division of labor has become more sophisticated and rigid than ever. In the global cycles of capital accumulation, the price of the competitiveness of the center is paid by the periphery. This burden-transferring maintains the gap between the center and peripheries and becomes increasingly significant in times of crises. This is illustrated by the example of the Central and Eastern European EU-member states, where the transnational corporations (TNCs) enjoy higher rates of profit and exploitation, and correspondingly, lower unit labor costs and wage shares. The increase of GDP in the region has been creamed off by the TNCs through repatriation of profits. The more a (semi-) peripheral country is integrated into the hierarchic system of global accumulation of capital, the less its catching up is likely. It seems that catching up is only possible beyond capitalism Read More: https://guilfordjournals.com/doi/abs/10.1521/siso.2018.82.4.502

Közvetlentőke-befektetések a kelet-közép- és kelet-európai EU-tagországok között

Közvetlentőke-befektetések a kelet-közép- és kelet-európai EU-tagországok között

Culture, Geography and Institutions: Empirical Evidence from Small-scale Banking

In this article, I explore one of the channels through which culture may directly affect economic activities. I find evidence that common cultural heritage has a statistically and economically significant effect on cross‐border bank loans (even after geographical closeness and institutional convergence have been taken into account) flowing from Austria's local and regional banks to clients residing in one of the neighbouring Eastern European EU member states. To compile formal statistical evidence that common culture plays a role in cross‐border bank lending, I developed a new instrument of cultural distance that measures Austria's cultural proximity to its neighbouring Eastern European countries.

Central and eastern European industrial relations in the crisis: national divergence and path-dependent change

This article assesses the effects of the recent economic crisis on industrial relations in the central and eastern European EU Member States. The analysis is based on the theoretical framework of three types of central and eastern European capitalism: neoliberal, embedded neoliberal and neocorporatist (Bohle and Greskovits, 2012). The article introduces the individual articles of this issue, arguing that the impact of the crisis on collective bargaining processes and institutions is shaped by economic and political factors and, above all, by the institutional setting of industrial relations. Trade union responses are explained by the varying use of two strategic sources of power: participation in formal collective bargaining (institutional power) and a strengthening of the membership base (membership power). Despite considerable differences between countries with regard to these factors, recent developments in collective bargaining have tended to be path-dependent and have resulted in a further shift of the region’s industrial relations towards neoliberalism.

Changing Development Prospects for the Central and Eastern European EU Member States

One of the fundamental goals of European integration is to provide less-developed member states opportunities for convergence and strengthen economic and social cohesion. Before the crisis the convergence process was impressive in the new member states. This success raises the question of how the institutions of the new EU member states match the institution types previously worked out for the old member states, and whether they resemble any of the broadly accepted four models of capitalism (Anglo-Saxon, Nordic, Continental European and Mediterranean) or represent a new type of model. Empirical analysis suggests that an independent Central and Eastern European model is eligible for existence. The characteristics of the model may be derived from three main factors: the lack of capital, weak civil society and the impact of the European Union and other international organisations influencing the new member states. FDI inflow could help to reduce the lack of capital. The success of convergence can be explained through the reconfiguration of the value chain after the collapse of communism by companies located in Continental and Northern Europe. These companies located their assembly activities in Central and Eastern Europe, and these countries could integrate not only within the EU but also within the world economy through increased investment and productivity. Although this convergence model has its limits, it provided sufficient space for the Central and Eastern European countries to develop, due to their low initial GDP levels. During the crisis the convergence has slowed down. The forthcoming period makes some changes in the convergence model necessary. The reduction in the private sector savings-investment gap is unavoidable. Savings must be used more efficiently than in the past. These suggestions are known in literature. However, two other important factors should also be taken into consideration. Failing to bridge the current productivity gap between foreign and domestic companies makes catching-up impossible. Population ageing and increased net migration from the Central and Eastern European countries has reached the level which demolishes their economic potential and destabilizes their societies in the medium and long run. These issues mean severe challenges on both national and European level.

Determinanty zmian deficytu budżetu państwa i długu publicznego w krajach Unii Europejskiej w 2010 roku

The article contains an analysis of the budget deficit variability and public debt variation in the EU in 2010. Comparing the scale and economic determinants of changes in the state budget deficit and public debt in 2010 in the Central and Eastern European EU member states and in other EU countries we reach the following conclusions: 1) The average scale of the improvement of the economic result of the state budget as % of GDP was higher in the Central and Eastern Europe countries comparing to other EU member states. In the first group of countries, economic results improved on average by 1.1 percentage points, and in the other by 0.75 percentage points. 2) In most Central and Eastern European countries, as well as in most other EU countries the decline in budgetary expenditure, expressed in% of GDP was the only or major determinant of the reduction of the economic deficit of the state budget as % of GDP. Reduction of public spending in GDP was in turn the result of reducing the fiscal growth of nominal spending. In the Central and Eastern European countries in 2010, the nominal budget spending, decreased on average by 0.4%, while in 2009 increased on average by 16.1%. 3) In the rest of the EU average increase in public debt as % of GDP was higher than the average increase in public debt in the countries of Central and Eastern Europe. For the rest of the EU member states, public debt at the end of 2010 as % of GDP was by 4.65 percentage points higher than at the end of 2009, and for the Central and Eastern European countries by 4.14 percentage points higher. At the end of 2010 Central and Eastern European countries had significantly lower average level of public debt as % of GDP in comparison with other EU members states (38.9% of GDP and 74.8% of GDP). In most other EU countries there is virtually no limit for increasing the public debt, therefore there is no limit for a high budget deficit. Among Central and Eastern European EU member states only Hungary are in similar situation while Poland is close by. Therefore, most other EU countries and some countries of Central and Eastern Europe must immediately substantially reduce the scale of the economic deficit of the state budget. Countries where public debt is relatively low should not delay further restrictions of the state budget deficit as later on they will have to make this reduction under pressure of time. Above else, high economic deficit negatively impacts the economy, including economic growth. If EU member states fail to implement quickly the low economic state budget defi cit policy, they will plunge into economic recession that will last for many years.

Reduction of the effective corporate tax burden in Romania 1992–2012 and Romania's current ranking among the Central and Eastern European EU member states

This article traces Romania's development to a low-tax country among the member states of the European Union by analysing the major tax law changes in corporate taxation since 1992. We compute and compare the effective company tax burdens of a European model company at different points of time which constitute milestones in the development of corporate taxation in Romania. We find that the significant reduction of the corporate income tax rate from 45% in 1992 to 16% since 2005 has not been accompanied by a comprehensive broadening of the corporate income tax base as it has been in many longstanding member states of the EU and the OECD. Since 1992 the average company tax burden of the underlying model company has dropped by almost 65%. As a result, Romania holds second position among the group of Central and Eastern European EU member states.

Romania's Development to a Low-Tax Country: Effective Corporate Tax Burden in Romania from 1992 to 2010 and Romania's Current Ranking Among the Eastern European Member States

We trace back Romania’s development to a low-tax country among the Member States of the European Union by analysing the major tax law changes in corporate taxation since 1992. We find that the significant reduction of the corporate income tax rate from 45% in 1992 to 16% since 2005 has not been accompanied by a comprehensive broadening of the corporate income tax base as prevalent in many longstanding Member States of the EU and the OECD. Our analysis is not limited to a comprehensive description of the development of corporate taxation in Romania, but goes on with a numerical analysis of the tax burdens at different periods of time which constitute milestones in the development of corporate taxation in Romania. For this purpose, we apply the European Tax Analyzer, which is a computer-based model firm approach. We find that the average company tax burden of the underlying model company has dropped significantly by almost 65% since 1992. Furthermore, our numerical analysis does not confirm the tax base broadening policy. As a result, Romania holds position two among the group of Central and Eastern European EU Member States.

Exchange rate pass-through in central and eastern European EU Member States

This paper provides estimates of exchange rate pass-through (ERPT) to consumer prices for nine central and eastern European Member States. Using a five-variate cointegrated VAR (vector autoregression) for each country and impulse responses derived from the VECM (vector error correction model), we show that ERPT to consumer prices averages about 0.6 using the cointegrated VAR and 0.5 using the impulse responses. We also find that the ERPT seems to be higher for countries that have adopted some form of fixed exchange rate regime. These results are robust to alternative normalisation of the VAR and alternative ordering of the impulse responses.

The effect of nominal exchange rate volatility on real macroeconomic performance in the CEE countries

This paper analyzes the relation between nominal exchange rate volatility and several macroeconomic variables, namely real output growth, excess credit, foreign direct investment (FDI) and the current account balance, in the Central and Eastern European EU member states. Using panel estimations for the period between 1995 and 2008, we find that lower exchange rate volatility is associated with higher growth, higher stocks of FDI, higher current account deficits, and higher excess credit. At the same time, the recent evidence seems to suggest that following the global financial crisis, “hard peg” countries may have experienced a more severe adjustment process than “floaters”. The results are economically and statistically significant and robust.

The Effect of Nominal Exchange Rate Volatility on Real Macroeconomic Performance in the CEE Countries

This paper analyzes the relation between nominal exchange rate volatility and several macroeconomic variables, namely real per output growth, excess credit, foreign direct investment (FDI) and the current account balance, in the Central and Eastern European EU Member States. Using panel estimations for the period between 1995 and 2008, we find that lower exchange rate volatility is associated with higher growth, higher stocks of FDI, higher current account deficits, and higher excess credit. The results are economically and statistically significant, and robust.

Evaluating Inflation Determinants with a Money Supply Rule in Four Central and Eastern European EU Member States

We evaluate the monetary determinants of inflation in the Czech Republic, Hungary, Poland and Slovakia by using the McCallum rule for money supply. The deviation of actual money growth from the rule is included in the estimation of Phillips curves for the four economies by Bayesian model averaging. We find that money provides information about price developments over a horizon of ten quarters ahead, albeit the estimates are in most cases rather imprecise. Moreover, the effect of excessive monetary growth on inflation is mixed: It is positive for Poland and Slovakia, but negative for the Czech Republic and Hungary. Nevertheless, these results suggest that money does provide information about future inflation and that a McCallum rule could potentially be used in the future as an additional indicator of the monetary policy stance once the precision of the estimation improves with more data available.