Obviously, the euro area aggregate figures mask the large heterogeneity among Member States, where gross debt ranges from 10% of GDP in Estonia to 157% in Greece. This notwithstanding, it goes without saying that general debt levels in European countries need to decline, also in view of long-term demographic challenges. Turning to private sector debt, Japan faced severe adjustment needs in the corporate sector, with debt of non-financial corporations declining from 130% to 80% of GDP in the 15 years that followed the peak in economic activity. In the euro area, the debt level of the aggregate non-financial sector never reached the peaks seen in Japan and aggregate household indebtedness is also comparatively lower in the euro area. However, in those euro area countries which experienced housing bubbles, the household sectors have been facing much stronger adjustment problems. Here, again, euro area averages mask significant heterogeneity across Member States. In fact, some euro area countries have seen strong capital inflows and unsustainable debtfinanced economic expansion. This has not only brought the risk of reversal, as seen after 2008 when private capital inflows dried up and domestic demand collapsed, it has also led to economic divergence within the euro area. Some countries have lost heavily in terms of competitiveness relative to their peer euro area countries. Regaining this competitiveness will indeed be a more gradual and tedious process.3 The credit-financed housing boom in countries like Ireland and Spain led to residential property prices more than doubling in the seven years leading up to their peak.

Boris Vujčić: Macroeconomic developments and structural issues in CEE countries Speech by Mr Boris Vujčić, Governor of the Croatian National Bank, at the Roundtable on Macroeconomic Developments of the 16+1 Economies, Magyar Nemzeti Bank (the central bank of Hungary), Budapest, 9 November 2018. * * * Accompanying slides of the presentation. Economic expansion in the CEE region can be expected to continue in the near term supported by still favourable cyclical conditions. However, in many countries pace of growth might moderate, partly due to supply side constraints and maturing business cycles. Potential growth estimates indicate that in all countries output gaps are positive or have been closed, and unemployment rates are close or below pre-crisis levels, pushing-up the wage growth. While such a positive outlook for future growth is somewhat disturbed by rising risks to the global economy, such as escalation of trade tensions or tightening of financial conditions, CEE countries seem to be in a generally good shape to withstand the impact of negative shocks. Current account positions have improved and in many countries turned into surplus, while international liquidity positions are ample. Also, economic recovery coupled with efforts to push through fiscal adjustment programs led to improvement of general government balance and public debt was put on a declining path. Furthermore, financial systems in most countries remain robust and resilient, as attested by withstanding the shocks emanating from the global financial crisis and the European sovereign debt crisis.