Erasmus University Rotterdam
Conditions for Convergence;
From nominal to real and back
Contents
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Objectives
Nominal convergence
Real convergence
Policy challenges
Competitiveness
Bulgarian situation
Conclusions
Nominal convergence
• Macro and monetary conditions set by
EU for participation in EMU;
• Maastricht criteria
• Stability and Growth Pact
• Conditions set by applicant country
• Balance of cost and benefits
• Constraining growth or not?
Growth differences and growth
determinants
• In past considerable differences between
EU countries
• Some have used instrument of exchange
rate
• Now very limited influence of
international and national macro factors
• European Commission estimates that
75% of growth differences in euro-zone
is due to structural factors
Growth Differentials
(Standard Deviations)
Euro Zone
US
Germany
7
6
5
4
3
2
1
0
1990
1992
1994
1996
1998
2000
2002
2004
2006
Real convergence
• Main objective of
• National and EU policy
• Defined as convergence of wealth levels;
(not of growth rates)
• Key elements:
• Differentiated growth of productivity;
• Accelerated change in sectoral structure
• Enhanced conditions for competitiveness
Past performance of EU
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Long term convergence of wealth levels
Catching up of the poor members
Recent stop of trend
Determining factors from EU:
Market access;
Structural Funds
Institutional change
Real convergence in the long term
Type of Region
Central
Intermediate 1
Intermediate 2
Peripheral
1950
150
114
95
33
2000
132
114
95
54
Competitiveness: Challenge for
policy makers
• Whole list of points to take care of (see
competitiveness tree)
• For each of them policy instruments
have been developed and tested
• Question remains: what works, why and
and where (OMS/NMS)?
• Risk of bewildering and opting for
fashion solutions
Enhancing Competitiveness in
practice
• Analysis made of programmes of OMS
(Obj1), NMS and CANS
• Show very little differences in objectives
• All include Lisbon agenda
• Few real priorities: keep options open
• Tendency to go for hard infrastructure
• Underrating of capacity building
Public efforts
• Each aspect demands considerable
efforts of the public sector
• Both important investment and important
annual outlays
• These are confronted with limited
resources (NAT + EU)
• So harsh choices to be made with or
without EMU membership
A few lessons
• Learn from bad and best practices of
others
• Orient your budget to competitiveness
oriented outlays and not on redistribution
• Within competitiveness make choices
and set priorities
• In line with national and local potentials
Bulgarian situation
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Trying to come to grips with challenges
EU money is coming in large amounts
On conditions: e.g.
Co-financing safeguarded
Compliance with rules of the game
Big risk: Under-utilization due to non
compliance
Enhancement of absorption
capacity is essential
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Definition of projects
Prioritization of projects
Consistency of programme
Institutional set-up and staffing
Administrative capacity
Capacity of beneficiaries and
stakeholders to join in
Conclusions
• Nominal convergence is easier with a
more resilient economy
• To that end quick restructuring and
diversification is needed
• Competitiveness is key to change and
hence to real convergence
• Absorption capacity is key to
enhancement of competitiveness