##binski wages and depending on productivity growth may also lead to higher unit labour costs. higher wages also imply higher consumption and a further rise of demand for commodities in emerging markets. as the tail wind of globalization is reversing these days, the most difficult challenge which cee countries will have to face with is to keep fast real growth and, at the same time, to manage nominal convergence – indispensable condition of emu graduation. there are some issues which will make this task even more complicated : 1. migration. one of the major obstacles is the massive emigration of workforce observed in the new member states after joining the european union. in poland and the baltic states some 4 to even more than 7 percent of a labour force attracted by higher wages, job availability and better living conditions migrated so far to the eu - 15. this has led to severe tensions in many industries pushing wages and unit labour costs up. high corporate profits have provided a cushion yet, but, if this situation continues, many companies will be forced to raise prices to remain profitable. 2. rising unit labour costs. growing tension on the labour market is present in all cee countries, but baltic and balkan states seem to be the most threatened by rising labour costs. annual average dynamics of unit labour costs in the second quarter of 2007 in cee accounted to 8 per cent and in the group of baltic and balkan states the figure was over two times higher. this shows that sooner or later ( rather sooner ) enterprises will stop cutting their profit margins and will be forced to pass growing operational costs on consumers. 3. productivity growth. we live in a global knowledge economy, which is driven by innovation – technological, business - process or customer related. the crucial factor to succeed in the global knowledge economy is the country ’ s ability to develop intellectual capital. only those who understand the importance of innovations for growth will thrive and prosper in the coming decades. unfortunately, cee region lags badly behind the leaders in terms of its current and future ability to generate innovation. one of indicators measuring current ability to innovate is the number of researchers. in the mid - 1990s cee - 4 ( the czech republic, hungary, poland and slovakia ) and nies regions had similar number of researchers per million people, while two years ago nies had almost twice as many persons employed in r & d per million people in comparison with cee - 4. future knowledge potential of particular country or region can be measured by tertiary enrol

##ment ratio. tertiary enrolment ratio in the cee - 4 countries improved to 50 percent in 2004, but still remains well below 62 percent in the eu - 15 and 82 percent in the united states. because of a relatively small population and a number of structural deficiencies it is very unlikely, that increase in the number of students in cee - 4 that have occurred in recent decade will translate into higher innovation potential in the coming years, unless a dramatic change in policies in cee - 4 is made. this is also confirmed by a dramatically low number of patents registered in the cee countries and extremely low number of scientific publications. as the ability to generate great ideas in the cee region is limited, it seems that in the transition period the most important modernization channel in the region was through foreign direct investments. indeed cee became a very large recipient of fdi, with fdi stock to gdp ratio topping 40 percent in cee - 4 region. only nies economies managed to attract higher fdi stock in relation to gdp and enjoy higher fdi annual inflows. however, in the global knowledge economy it is important to attract foreign direct investments to sectors that can become globally competitive, in particular to these sectors that export hightechnology, i. e. high value added goods or services. while cee - 4 significantly improved the structure of exports, the high - tech goods account for only 12 percent of manufactured exports, which is the world worst result, lagging even behind latin american countries. nies are world leaders and china is about to take over the second post from the united states. above data suggests that in the long run low ability to generate innovation combined with low value added fdi may harm the cee ability to improve productivity. summing up, with the inflation headwind expected in the coming few years cee central banks will face a possibly steep sacrifice ratio when controlling inflation. keeping inflation at the target consistent with emu accession may require sizeable reduction of the output gap, which in turn may make fiscal targets difficult to achieve. tail wind of globalization appears to be fading in the coming few years and if agflation or surge in other commodity prices materializes, joining emu may become “ mission impossible ” for many cee countries in the next few years. the window of opportunity created by global inflation “ tail wind ” might have closed in 2007. references freeman r. ( 2005 ) “ the great doubling : america in the new global economy ”,