this relatively short period of time. it almost seemed that such developments were in line with so called absolute or unconditional convergence where lower - income economies grow faster than higher - income economies, simply because the marginal productivity of capital in those countries is higher. however, today no one actually believes in absolute convergence theory which builds on the assumption that across all countries, the level of technical knowledge ( and its change ), the rate of savings, the rate of population growth, and the rate of depreciation are all the same. this notion is clearly rejected by the data : countries differ in many, if not all, of these features. and this is the case also for our group of countries in the cesee region with relatively similar backgrounds. therefore, concluding that real income developments before the onset of the crisis were in line with unconditional convergence theory would simply be spurious. since the onset of the crisis positive income convergence trends were first reversed in many of the countries in the region and, when convergence reappeared, its pace was significantly slower than at the beginning of the 2000s. at the current pace of convergence, most countries in the region would need decades to reach german, austrian or swedish levels of income, countries that are often referred to as the benchmark for the cee region. which, in a way, brings us to the notion of conditional convergence. the theory of conditional convergence implies that if there are persistent differences across countries in preferences and other institutional features, divergence is possible in terms of both levels of income and growth rates. and the last crisis has reminded us of this quite roughly. just take a look at the countries of europe's periphery. the average level of income of greece, italy, spain and portugal in 2016 was only at around 67 % of the german income, compared to 80 % at the beginning of the millennium. similarly, in croatia, slovenia or, to a lesser extent, also the czech republic, the relative level of income in 2016 was lower than in 2008. therefore, growth and convergence can be held back for a protracted period of time before they reappear, or forces can even work in an opposite direction, leading to divergence. the south of the eu has actually not been converging towards the north for more than two decades. therefore, the convergence of standards of living is not a sure thing, and should not be taken for granted. and we all know the notion of keeping up with the joneses, or in a

more modern version – keeping up with the kardashians, a notion that is apparently even more important today in a highly globalised world with a free flow of information. if the joneses or the kardashians are getting a new mercedes, people are bound to like something similar even though just two decades ago they were driving ladas or trabants or polski fiat. so despite the progress achieved so far, citizens will continue to want more. and why shouldn't they? converging to what? since the eu stopped converging, and actually diverged, from the us in mid 1990s the question is should the goal be to converge towards the eu style labour, product and financial markets, or maybe more efficient ones? converging towards the structures that are themselves underperforming might not be a right choice. for example, integration of the cee banking markets with the west european ones through entry of banks into the cee region at an early stage of the transition has certainly being beneficial in bringing better technology and banking culture, as well as facilitating the transfer of capital. however, today, when it is clear that bank - based systems are inferior to more capital market - based ones, and when loan - to - deposit ratios are close to one, the goal should probably be to turn towards developing more efficient structures of the financial markets. how should we, as policymakers, react to this? what are the next steps that we have to take? how much do we know? well, we know that when it comes to standards of living, in the long - run it is all about labour productivity. and labour productivity, in turn, depends on the amount of capital per unit of labour and something that we call total factor productivity ( tfp ) or multifactor productivity. the problem is that both of these components are hard, or impossible, to measure, so we have to estimate them, and that is by no means an easy task. much has been said about the tfp growth in the context of the discussions on the slowdown in the productivity growth, or discussions of the convergence in europe. however, if you try to decompose the data that are used in these discussions, i believe that you'll come to realise that there are serious measurement issues. for example, it is hard to believe that there has been almost no increase in capital stock per worker in romania and at the same time, the country managed to increase its t