Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/128244
Authors: 
Iwulska, Aleksandra
Sugawara, Naotaka
Zalduendo, Juan
Year of Publication: 
2012
Series/Report no.: 
CASE Network Studies & Analyses 438
Abstract: 
This paper draws on the experience of emerging Europe and argues that foreign capital is an enviable development opportunity with tail risks. Financial integration and foreign savings supported growth in the EU12 and EU candidate countries. We argue that this was possible because of EU membership (actual or potential) and its role as an anchor for expectations. In contrast, the eastern partnership states did not benefit from the foreign savings-growth link. But financial integration also led to a buildup of vulnerabilities and now exposes emerging Europe to prolonged uncertainty and financial deleveraging due to eurozone developments. Nonetheless, we believe that external imbalances should not be eradicated-nor should emerging Europe pursue a policy of self-insurance. Instead, what we refer to as an acyclical fiscal policy stance could serve to counterbalance private sector behavior. Going forward, a more proactive macroprudential policy will also be needed to limit financial system vulnerabilities when external imbalances are large.
Subjects: 
Financial integration
Emerging Europe
Capital inflows
Growth
Macroprudential policies
JEL: 
E58
F36
F41
G28
ISBN: 
978-83-7178-562-7
Document Type: 
Research Report

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