in january 2008. this opportunity has been lost, and now meeting the maastricht criteria will become more challenging. if agflation is with us to stay, and central banks decide to keep cpi close to the target, high sacrifise ratio implied by flat phillips curve may require significant growth slowdown. in such case meeting fiscal criteria will be challenging amid slowing tax revenues. if, on the contrary, central banks treat agflation as a typical negative supply shock, then meeting inflation criterion will be challenging. finally, if strong exchange rate appreciation continues, we may just make it will both fiscal and inflation criteria, but we will enter eurozone with heavily overvalued exchange rate, which may harm growth for many years if not decades. this is a real “ gordian knot ” to be solved by cee central banks, financial market regulators and governments. the “ alexandrian solution ” would be massive acceleration of productivity enhancing reforms, especially in the area of knowledge economy, where the cee countries are badly lagging behind other regions. if we don ’ t accelerate reforms we may still be lucky, there could be few years in a row with good global crops, or someone will finally produce cheap hydrogen - powered car to replace gasoline, resulting in a collapse of oil prices. but i would not bet the country future on the assumption of being lucky. thank you for your attention.

, 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. 4. 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. 5. challenges to keep fast 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 asian nies 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 enrolment 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