klaus liebscher : southeastern europe – chances and challenges of european integration speech by dr klaus liebscher, governor of the austrian national bank, at the southeastern european financial forum, bucharest, 17 may 2007. * * * ladies and gentlemen! it is a great honor for me to address this distinguished audience here at the southeastern european financial forum. i am pleased to discuss the success the southeastern european countries have achieved so far during their catching - up and european integration process and the challenges they face. but first of all, let me congratulate romania and bulgaria on their accession to the european union on january 1, 2007. both countries are now fully participating in the further progress of european integration. i think it is fair to say that southeastern europe is a rather heterogeneous region, which means that it is important to adopt a differentiated approach to analyzing developments within this region. yet given my short time slot here, a certain degree of generalization is inevitable. overall, southeastern europe has performed well in economic terms in the recent years. output growth has been solid in 2005 and 2006 at average rates of around 5 %. inflation decreased considerably and the renewal of some inflationary pressures in 2005 and early 2006 has apparently been temporary. noticeable progress has also been achieved in fiscal consolidation, and fiscal balances in southeastern europe show moderate deficits or surpluses. furthermore, the privatization process is now well advanced in most countries, with the share of the private sector in gdp coming to between 55 and 75 %. at the same time, challenges remain in several areas. • first, despite strong economic growth, unemployment has remained pronounced across the region, reaching levels as high as around 40 % in some countries. thus, reducing unemployment and increasing employment levels remains a significant challenge, especially in a number of the smaller countries of the region. • success in this area would not only bring improvement to the everyday life of citizens and thus contribute to political and social stability, but help raise potential and actual output in these countries. • second, external imbalances remain large throughout most of southeastern europe, with current account deficits at higher single - digit or even at double digit levels. although these deficits are to a significant degree financed by foreign direct investment inflows, the region remains heavily reliant on external finance. this exposes the countries to interest rate developments in industrial countries and to changes in investor sentiment. • third, notwithstanding progress in privatization in recent years, the share of the private sector in gdp

market which have been gradually phased out in collaboration with the federal government. the measure is helping the government ’ s efforts towards documentation of the economy. i would urge upon the leaders of the banking community present here, to avail this opportunity of learning from the international and regional experiences and highlight concerns, if any. your involvement is vital for success of the seminar and the subject matter itself. we are fortunate to have with us today resource persons who are professionals of international repute. at the same time, state bank, in its capacity of regulator, welcomes suggestions and recommendations for improving regulatory and supervisory systems for a clean and healthy banking sector. in conclusion, i would like to acknowledge that the prime minister ’ s presence has provided us tremendous support and confidence. this is reflective of the government ’ s resolve and priority in tackling the issues of money laundering and terrorist financing. i would like to acknowledge the support and cooperation of world bank and imf in hosting this seminar.