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A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Dabrowski, Marek Research Report The global financial crisis and its impact on emerging market economies in Europe and the CIS: Evidence from mid-2010 CASE Network Studies & Analyses, No. 411 Provided in Cooperation with: Center for Social and Economic Research (CASE), Warsaw Suggested Citation: Dabrowski, Marek (2010) : The global financial crisis and its impact on emerging market economies in Europe and the CIS: Evidence from mid-2010, CASE Network Studies & Analyses, No. 411, ISBN 978-83-7178-521-4, Center for Social and Economic Research (CASE), Warsaw This Version is available at: http://hdl.handle.net/10419/128215 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. 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They can be subject to further publication. The views and opinions expressed here reflect the author(s) point of view and not necessarily those of CASE Network. This paper has been prepared under the project on “Advisory Services on Macroeconomic Management and Institutional Reform (ASMMIR)” for the Ministry of Economic Development of Azerbaijan. The project is being conducted by CASE – Center for Social and Economic Research on the basis of Grant Agreement G-08-BPCS-162136 signed between the British Petroleum Exploration (Caspian Sea) Ltd. and CASE. Keywords: global financial crisis, emerging-market economies, European Union, Economic and Monetary Union, Central and Eastern Europe, Commonwealth of Independent States, sovereign debt crisis, global policy coordination JEL Codes: E44, E63, F32, F36, F42, G15, H63 © CASE – Center for Social and Economic Research, Warsaw, 2010 Graphic Design: Agnieszka Natalia Bury EAN 9788371785214 Publisher: CASE-Center for Social and Economic Research on behalf of CASE Network 12 Sienkiewicza, 00-010 Warsaw, Poland tel.: (48 22) 622 66 27, 828 61 33, fax: (48 22) 828 60 69 e-mail: [email protected] http://www.case-research.eu CASE Network Studies & Analyses No. 411 – The Global Financial Crisis and it’s Impact on … Contents Abstract..................................................................................................................... 3 1. Introduction........................................................................................................... 5 2. The golden period of global growth before 2008............................................... 7 3. The first shock: global financial crisis (2008) .................................................... 8 4. Economic performance in 2009 – a mixed picture ............................................ 9 5. The second shock: European and global public debt crisis .......................... 13 6. The role of the EU/EMU umbrella ...................................................................... 14 7. Looking ahead: what can happen next?........................................................... 17 8. Conclusions and recommendations................................................................. 18 References .............................................................................................................. 21 Tables and Figures................................................................................................. 23 2 CASE Network Studies & Analyses No. 411 – The Global Financial Crisis and it’s Impact on … Marek Dabrowski , Professor of Economics, President of CASE - Center for Social and Economic Research, former Chairman of the Supervisory Board of CASE-Ukraine in Kyiv, Member of the Scientific Council of the E.T. Gaidar Institute for Economic Policy in Moscow; Former First Deputy Minister of Finance (1989-1990), Member of Parliament (1991-1993) and Member of the Monetary Policy Council of the National Bank of Poland (1998-2004); Since the end of 1980s he has been involved in policy advising and policy research in Azerbaijan, Belarus, Bulgaria, Egypt, Georgia, Iraq, Kazakhstan, Kyrgyzstan, Macedonia, Moldova, Mongolia, Poland, Romania, Russia, Serbia, Syria, Turkmenistan, Ukraine, Uzbekistan and Yemen, as well as in a number of international research projects related to monetary and fiscal policies, currency crises, international financial architecture, EU and EMU enlargement, perspectives of European integration, European Neighborhood Policy and political economy of transition; World Bank and UNDP Consultant; Author of several academic and policy papers, and editor of several book publications. 3 CASE Network Studies & Analyses No. 411 – The Global Financial Crisis and it’s Impact on … Abstract Emerging market economies were major beneficiaries of the economic boom before 2007. More recently, they have become victims of the global financial crisis. Their future development depends, to a large extent, on global economic prospects. Today the global economy and the European economy are much more integrated and interdependent than they were ten or twenty years ago. Every country must recognize its limited economic sovereignty and must be prepared to deal with the consequences of global macroeconomic fluctuations. The statistical data for 2009 provides a mixed picture with respect to the impact of the crisis on various groups of countries and individual economies. On average, Central and Eastern Europe experienced a smaller output decline than the Euro area and the entire EU while the CIS, especially its European part, contracted more dramatically. However, there was a deep differentiation within each country group. Looking globally, richer countries, which are more open to trade and in which the banking sector plays a larger role and which rely more on external financing, suffered more than less sophisticated economies, which are less dependent on trade and credit (especially from external sources). With some exceptions, the previous good growth performance helped rather than handicapped countries in the CEE and CIS regions in the crisis year of 2009. The post-crisis recovery has been rather modest and incomplete. It remains vulnerable to new shocks (like the Greek Fiscal crisis), the danger of sovereign default and other uncertainties. Full post-crisis recovery and increasing potential growth will require far going economic and institutional reforms on both national, regional (e.g., EU) and global levels. 4 CASE Network Studies & Analyses No. 411 – The Global Financial Crisis and it’s Impact on … 1. Introduction In the early and mid-2000s, emerging market economies were major beneficiaries of the economic boom which preceded the recent global financial and economic crisis. They have become victims of the crisis, and their future development depends, to a large extent, on global economic prospects, which are highly uncertain in the fragile post-crisis environment. Although there have been domestic economic policies which can be given credit for some of the early successes and then blamed for crisis-related problems, one cannot forget about the role of external factors. Many of the small open economies of Central and Eastern Europe, Latin America or Asia are dependent on external demand and capital flows originating from their dominant economic partners such as the EU, US, Japan or China. This has made them vulnerable to various shocks (both positive and negative) generated by those neighbors/ partners which are largely beyond their control and beyond the capacity of domestic policy to cushion their impact (see Ganev, 2010 in respect to Bulgaria). The above dependence results not only from formal integration arrangements such as EU membership/ EU candidate status (which, by definition, means giving up some degree of national sovereignty in economic and institutional spheres) or less binding free trade agreements, but also from the much broader phenomenon of rapid globalization observed during the last few decades. Thus, even the countries which do not belong to regional integration blocks like the EU face serious limitations in their domestic economic policies due to increasing global interdependence. Today’s global and European economies are much more integrated and interdependent than they used to be ten or twenty years ago, let alone during the post-World War II period. In an environment of highly integrated global markets, each country (even the biggest ones like the US, Japan, China or the EU as an entire block) must recognize its