and a much higher level of freedom. the cesee region in particular saw a period of accelerated growth rates in the years prior to the global financial crisis. this was a win - win situation not just for the acceding countries but also for the eu, in general, and for austria with its strong trade and investment links to the cesee region, in particular. the episode following the introduction of the euro in 1999 and up to the beginning of the financial crisis was beneficial to the euro area. but those countries who apparently profited the most had to find out that they had built their performance on the untenable foundation of private debt backed by overvalued assets. the crisis has revealed that the previously remarkable catching - up process is neither automatic nor irreversible. the new central european member states fared relatively well in terms of trade performance even after the financial crisis. by contrast, a dramatic stop of private financing flows required the economies under stress in the euro area, the baltics and the balkans to quickly adjust their external imbalances. even though they improved their competitiveness, external rebalancing resulted in internal imbalances such as high unemployment and overcapacities, while the development of new export capacities was hampered by financial constraints and weak european and foreign demand. hence, a lot of the adjustment had to take place via diminished import demand caused by painful cuts in bis central bankers ’ speeches income and employment. whether this import reduction is sustainable depends on the structural nature of the related economic slump – something we will only know with a sufficient degree of certainty at the beginning of a new cycle. a very interesting aspect of external imbalances is their relation to the patterns of sectoral specialization in a given economy. the countries featuring the best export performance prior to and after the financial crisis are exactly those that have a large manufacturing sector. the four countries that form the visegrad group have been fortunate in terms of foreign direct investment, which enabled their re - industrialization. via cross - border production networks, these economies are involved in a “ new industrial core ” of europe together with germany and austria. those countries, however, that have not been able to establish sufficient tradable industries and have neither abundant natural resources nor tourist attractions have difficulties to escape the dilemma of either chronic disequilibria or contractive deleveraging. even worse, investment, which is crucial for future growth, has been cut over proportionally. six years after the collapse of lehman

stood the hypothesis that economic integration – and at a later stage also monetary integration – would lead to intensified trade and fdi flows, which would mutually reinforce one another. furthermore, the more closely countries are linked through trade and fdi, the more the synchronization of their business cycles will progress. this in turn reduces the costs of a loss of customs and monetary autonomy. all these factors will ultimately lead to higher growth, promote development and stimulate the catching - up process. this line of argument is therefore essential for the assessment of the costs and benefits of removed trade barriers and monetary union. have these hypotheses been substantiated so far? has the european integration process indeed stimulated trade and investment flows? and, if so : have intensified trade and investment helped to accelerate growth and the catching - up process? empirical evidence suggests that european integration has indeed stimulated trade and fdi. in 2005, in - and outflows of foreign direct investment funds from and to the eu reached a level that was only topped by the record year 2000. the european union could attract almost half of all funds invested worldwide. we will hear more on the current trends and patterns of fdi in session 1 this morning. this leads me to the second question : have trade and investment had the desired effect of stimulating productivity and growth through knowledge and technology spillovers? how can economic policy at the national and at the eu level contribute to generating a “ win - win situation ” in which both the investors and the fdi host countries profit from capital flows? we will hear more about the benefits and costs of fdi for the home and the host countries in session 3 this afternoon and in session 4 tomorrow morning, so i do not want to address these topics prematurely. let me at this stage just emphasize two important aspects : first, the european stability architecture provides the ideal environment for trade and fdi activities. the design and the interaction of a stability - oriented common monetary policy at the euro area level, sound public finances and ambitious structural policies at the national level are all essential elements of a healthy business environment, which is conducive to fdi development. this ensures that the freedom of movement for persons, goods, services and capital, can fully materialize and bring about flexible and dynamic economies. second, the ten new eu member states are the best example of how the fdi landscape has changed in the course of the european integration process. they have experienced trade intensification and a wave of f