Financial Stability Report No1 20 December 2010 - Banka Qendrore ...

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Number 1Financial Stability Report58 |
Financial Stability ReportNumber 18. Financial Sector Stability and Economic Growth in SEE CountriesBoštjan Jazbec and Albulenë Kastrati8.1 IntroductionRecent financial crisis which outcome is still unresolved and poses many problems to thefuture development of the world financial markets also affected less developed economies inthe region. As many economies which were formerly known as transition economies havemore or less successfully either joined the European Union or are intensively involved inthe accession processes, their response to the world financial crisis depended primarily onthe extent of the reforms they have been able to introduce during the last twenty years ofthe transition processes. Today it is rather uncommon to talk about those countries astransition economies, instead it is common to address those countries as new EU countrymembers or less developed economies of the EU region. Following the footsteps of the mostsuccessful transition economies in terms of their economic development and proximity tothe EURO adoption, the less developed economies of the EU region are able to leap overearly stages of the transition process which one was able to observe almost twenty yearsago.However, it seems that factors which were important twenty years ago in determining thesuccess of the transition process lost its importance as it has became obvious thatmacroeconomic stabilization and financial liberalization are not enough to maintain highergrowth rates in less developed EU countries which were previously known as transitioneconomies of the Central and South-Eastern Europe.The South-Eastern European countries (SEE) 10 represents the late comers to the processesof accession to the European Union (EU). The region was plagued by political and warconflicts which mainly determined the pace of structural reforms in their economies. Beinggeographically landlocked also contributed to their lack of faster economic revival andhigher economic growth. The only EU country in the region is Greece except for Bulgariawhich joined the EU in 2007. However, it is Greece which in recent years was the mostproblematic EU member countries in terms of economic stability and financial fragility. Theaim of the paper is to examine the growth potential of the SEE countries also with regardsto the effects of the financial crisis in the EU. It will be shown that financial crisis in theEU and particularly in Greece did affect the financial systems in the SEE countries.However, one can not solely attribute slow economic revival and lower than expectedgrowth rates in the region to the macroeconomic developments and fragile financialsystems in those countries. On contrary, it will be shown that most countries have beensuccessful in implementing needed reforms and opened up their financial sectors. For thosereasons, these economies are ready to experience the economic revival by norms ofmacroeconomic framework and development of their financial system. It will be claimedthat this does not happen because these economies lack the institutional setting whichwould support the investment demand needed to generate economic growth.The second chapter of paper discusses the transition process of the last twenty years.Looking back from the distance it is obvious that macroeconomic stabilization and financialliberalization are not sufficient determinants of economic growth in less developed10 Albania, Macedonia, Bulgaria, Kosovo, Serbia, and Montenegro.| 59
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CBK Working Paper no. 4Efficiency o
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