ewald nowotny : catching - up strategies after the crisis opening remarks by mr ewald nowotny, governor of the central bank of the republic of austria, at the conference on european economic integration ( ceei ) 2010, vienna, 15 november 2010. * * * ladies and gentlemen! it is a great pleasure for me to welcome you to our annual conference on european economic integration. the oesterreichische nationalbank ( oenb ) has been hosting this event for many years, offering a forum for lively debates between distinguished panelists from national and international institutions, politics, banking and academia. i am glad that such a sizeable number of participants and speakers show an interest in this year ’ s conference theme. implications of the financial crisis for cesee countries as you all know, the last two years have been characterized by the global financial crisis. in its early stage, the crisis had been confined to advanced economies. local and foreign banks in central, eastern and southeastern european ( cesee ) economies held only a negligible amount of so - called toxic assets. nevertheless, excessive risk - taking put the global financial system under serious stress, which had an adverse impact on the world economy. the cesee economies were particularly affected by output declines. these were also caused by accumulated vulnerabilities in the region, especially the credit boom ( backe and wojcik, 2008, fidrmuc and hainz, 2010 ) and foreign currency lending ( dvorsky et al., 2010 ). the output loss, with average gdp decline amounting to – 3 % in new eu member states and to – 6 % in all cesee countries in 2009 ( imf, 2010 ), was deeper than we expected. in turn, we can see slight improvements in this region this year. therefore, as reflected in its title, this year ’ s conference is forward looking, dealing with catching - up strategies after the crisis. the beginning of 2010 actually featured developments which were better than expected and fueled the hope that the crisis was already passing away. nearly all cesee countries ( with the exception of bulgaria and romania ) are expected to grow during this year ( schreiner et al., 2010 ). however, the growth is fueled mainly by restocking and external demand. moreover, the forecasts for 2011 and 2012 remain modest. the growth prospects are still fragile and there are significant downsize risks. the growth path will remain below the precrisi

##s trend for the coming years. light at the end of the tunnel, but challenges remain after the positive trend in the first half of 2010, we can now begin to see the light at the end of tunnel, but we have still much to do. the previous output declines have to be taken as an incentive to reduce vulnerabilities in the region and to continue economic and structural reforms. fiscal stabilization will represent an extraordinary challenge for the next few years. fiscal debt has increased in all countries during the last two years. prior to the crisis, the new member states had a relatively low level of public debt ( 37. 4 % of gdp ), but it increased by nearly 10 % of gdp on average alone in 2009 ( imf, 2010 ). although this level is still lower than the public debt of the euro area ( 87 % of gdp ), we have to return to a sustainable growth path. the new member states will have to increase their efforts in order to stabilize public finances and fulfill the stability and growth pact. we have to use every possibility of financial stabilization, while at the same time keeping in mind also the global fragile growth prospects. exchange rate developments represent another important challenge. we can see that currently, the euro is gaining strength. this has also important implications for cesee economies where both the euro and demand from euro area countries play an overwhelmingly important role. exchange rate appreciations may have negative implications on europe ’ s external – but indirectly also on internal – trade. the development of cesee has important implications for the austrian economy due to strong linkages through trade and fdi. austria has been deeply rooted in the central european region. we are part of the central european family. actually, austria has made effective use of its geographic location during the two decades since the fall of the iron curtain. it has become one of the most important investors in the neighboring central european countries. despite the recent financial crisis, austria increased its market shares especially in central europe, for example in countries like slovenia and slovakia which have adopted the euro ( ritzberger - grunwald and worz, 2010 ). during the financial crisis, austria ’ s links to cesee economies have been seen as a potential source of vulnerability of the austrian economy, especially with regard to austrian banks investing intensively in cesee. these concerns did not materialize. in september 2010, the international banking regulations were revised as part of the basel iii agreement. the oesterreichische nationalbank and the