Monetary, Macroprudential and Fiscal Policy
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EMERGING EUROPEAN ECONOMIES AFTER THE PANDEMIC László Mátyás, Editor Foreword Use the template foreword.tex together with the document class SVMono (monograph- type books) or SVMult (edited books) to style your foreword. The foreword covers introductory remarks preceding the text of a book that are written by a person other than the author or editor of the book. If applicable, the foreword precedes the preface which is written by the author or editor of the book. Place, month year Firstname Surname v Preface Between 2004 and 2013, eight Central and Eastern European countries with an overlapping historical background (Bulgaria, Croatia, Czechia, Hungary, Poland, Romania, Slovakia, and Slovenia), joined the European Union. These Emerging European Economies (EEE) have since gone through radical, uneven, and some- times controversial, economic, social and political changes, which are not yet fully appreciated or understood. Some of them should even be considered advanced rather than emerging economies. The success of these countries will have a fundamental effect on the future of the European Union (EU) with far reaching consequences well beyond their borders. It is therefore of paramount importance to understand the events and phenomena they have been experiencing. Although there are a large num- ber of articles, studies, and papers available on these economies, information and analyses are frequently partial, superficial, incomplete and no more than distorted political and policy noise. Based on wide comparative data analysis, the main aims of this volume are to provide reliable information about the state of the economy in the EEE before the unprecedented Covid pandemic, and to identify the main problems, difficulties, similarities, and differences between them. Following this, the likely shorter- and longer-term effects of this shock are considered together with policy options. Special attention is given to the so-called ‘middle income trap’ as this seems to be one of the most important dangers the region is facing. Unless credible and viable solutions are implemented to be more in line with the European Union’s averages and mainstream in the most important factors of the economy and society, centrifugal anti-EU forces may gain heavy influence among the people of the EEE. This volume is data driven. Great emphasis is placed on presenting facts through the lens of available data. This approach also shows where data is missing, incomplete or misleading. Data may quickly become outdated; nevertheless, the general patterns, trends, and relationships seem to be remarkably stable. A great deal can be learned from them. Our policy recommendations are also data-driven, often presented in alternative forms, without any political or other preferential bias. We frequently talk about the EEE, which linguistically may seem odd, but is perfectly acceptable when meaning a group of countries. Although the volume aims vii viii Preface at consistency, the use of American, Australian, or British English is consistent only within one chapter, given the highly diverse background of the contributors. The chapters can be read and interpreted individually, but special attention is given to proper cross-referencing. and the book provides as complete a picture of the Emerging European Economies as possible. Overall, the general state of the economies within the EEE group does not look rosy. Despite their difficulties, most countries have at least one area, however small or narrow, where clever policy, original thinking, and decisive action have resulted in substantial and impressive progress. We hope that this volume will offer help in designing and implementing further forward-looking policies. Budapest and Vienna Laszlo Matyas September 2021 Acknowledgements We address our thanks to all those who have facilitated the birth of this book: the contributors who produced quality work, despite onerous instructions, requests and tight deadlines, and took part in an internal reviewing process to ensure a high over- all standard for the completed volume; our publisher Springer Nature, who had the foresight to publish a collection of analyses on the Emerging European Econom- ies, and last but not least, the Central European University and the Department of Economics and Business, who financially supported this project. The book benefited substantially from the comments and feedback received from Barbara Dutzler, Liviu Matei, Stefanie Peer, Balázs Váradi, Thomas Wiesner, ...... The chapters have been polished with the help of Eszter Timár and Robin Bellers. Their English language editing will certainly make this volume much easier and more enjoyable to read. The final camera–ready copy of the volume has been prepared with LaTeX and Overleaf by the authors, the editor, and the tireless and always helpful Polad Gu- lushov. ix Contents 1 Convergence to the Centre ................................... 1 Péter Benczúr and István Kónya 1.1 Introduction . .1 1.2 Convergence . .2 1.2.1 A Brief Theory . .3 1.2.2 Development and Growth . .5 1.2.3 The Sources of Growth . .7 1.2.4 External Finance and the Demand Side . 13 1.2.5 Social Convergence . 17 1.3 Potential Lessons from the 2008-2012 Global Financial Crisis: a Resilience Analysis . 18 1.4 The Covid Shock. 22 1.4.1 Cyclical Positions . 25 1.4.2 Macroeconomic Developments . 27 1.4.3 Social Developments: a First View . 32 1.4.4 Comparing the 2008-2012 and the Covid-19 Shocks . 32 1.5 Looking Beyond: Expected Recovery . 37 1.5.1 Forecasting Uncertainty . 37 1.5.2 Persistent Changes . 39 1.6 Summary and Implications . 42 1.6.1 Convergence . 42 1.6.2 Convergence and resilience . 42 1.6.3 The Covid shock and its comparison to the global financial crisis . 43 1.6.4 Future prospects . 44 References . 45 2 Financial Markets: Banks and Capital Markets .................. 51 Katalin Mérő and András Bethlendi 2.1 Introduction . 52 2.2 Basic Characteristics of Financial Intermediation in the EEE . 54 xi xii Contents 2.2.1 Depth and Structure of Financial Intermediation . 54 2.2.2 Specificities of the Shadow Banking System in the EEE . 58 2.2.3 Ownership Structure of the Banking System in the EEE . 63 2.3 Post-GFC Financial System in the EEE – from Stabilization to the Covid Shock (2014-2019) . 64 2.3.1 Banks . 64 2.3.2 Capital Markets . 75 2.3.3 Investors – the Asset Management Industry . 83 2.4 Covid and EEE Financial System . 86 2.4.1 Banks . 86 2.4.2 Capital Markets . 95 2.5 Conclusions and Longer-Term Perspectives . 99 Annex......................................................... 102 References . 105 5 Transport and Mobility ...................................... 111 Melinda Matyas, Daniel Hörcher and Jacek Pawlak 5.1 Introduction . 111 5.2 Transport Policy in the EEE Region . 114 5.2.1 Infrastructure Development and Prevalence of EU Funds. 114 5.2.2 Public Service Provision . 119 5.2.3 Deregulation of Transport Markets . 121 5.3 Emerging Trends in Mobility . 123 5.3.1 Greening of Vehicle Fuels . 123 5.3.2 New Mobility Services . 126 5.3.3 ICT Developments Changing Needs . 126 ICT Infrastructure and Use in the EEE . 127 Work from Home: Telework and Telecommuting . 129 Online Shopping . 131 Travel and Accommodation Services . 132 5.4 The Effects and Aftermath of the Covid Shock . 133 5.4.1 Mobility Restrictions and Impacts . 134 5.4.2 Public Interventions in the Pandemic . 137 Public Service Provision . 137 Road Use and Parking Regulation . 141 5.4.3 Downturn in Liberalised Transport Markets . 143 Airline Industry . 143 Liberalised Land Transport Modes . 145 5.5 Prospects after the Pandemic . 146 5.5.1 The Role of Transport Policy in National Recovery Plans 147 Bulgaria....................................................... 148 Croatia . 148 Czechia ....................................................... 150 Hungary....................................................... 150 Poland ........................................................ 151 Contents xiii Romania....................................................... 152 Slovakia....................................................... 152 Slovenia....................................................... 153 5.5.2 Transport Funding and the EU Cohesion Policy . 154 5.5.3 Transport, Mobility, and the Middle-Income Trap . 155 5.6 Conclusions and Policy Recommendations . 156 References . 159 6 Monetary, Macroprudential and Fiscal Policy ................... 165 Júlia Király, Balázs Csontó, László Jankovics, and Katalin Mérő 6.1 Introduction . 166 6.2 Recovery and Progress After the Global Financial Crisis . 168 6.2.1 Monetary Policy . 168 6.2.2 Macroprudential Policy . 181 6.2.3 Fiscal Policy . 188 6.2.4 Overall Policy Mix: Cycle and Stance . 193 6.3 Policy Response to the Covid-19 Crisis . 194 6.3.1 Monetary Policy . 195 6.3.2 Macroprudential Policy . 205 6.3.3 Fiscal Policy . 207 6.4 Long-term Prospects and Policy Implications . 213 6.4.1 Monetary and Macroprudential Policy . 214 6.4.2 Fiscal Policy . 219 6.4.3 Policy Interactions . 220 References . 222 7 Green Economy: Energy, Environment, and Sustainability ........ 235 Michael Carnegie LaBelle and Tekla Szép 7.1 Introduction . ..