Erasmus University Rotterdam Conditions for Convergence From nominal

Erasmus University Rotterdam Conditions for Convergence; From nominal to real and back

Contents • • Objectives Nominal convergence Real convergence Policy challenges Competitiveness Bulgarian situation Conclusions

Nominal convergence • Macro and monetary conditions set by EU for participation in EMU; • Maastricht criteria • Stability and Growth Pact • Conditions set by applicant country • Balance of cost and benefits • Constraining growth or not?

Growth differences and growth determinants • In past considerable differences between EU countries • Some have used instrument of exchange rate • Now very limited influence of international and national macro factors • European Commission estimates that 75% of growth differences in euro-zone is due to structural factors

Growth Differentials (Standard Deviations)

Real convergence • Main objective of • National and EU policy • Defined as convergence of wealth levels; (not of growth rates) • Key elements: • Differentiated growth of productivity; • Accelerated change in sectoral structure • Enhanced conditions for competitiveness

Past performance of EU • • Long term convergence of wealth levels Catching up of the poor members Recent stop of trend Determining factors from EU: Market access; Structural Funds Institutional change

Real convergence in the long term

Competitiveness: Challenge for policy makers • Whole list of points to take care of (see competitiveness tree) • For each of them policy instruments have been developed and tested • Question remains: what works, why and where (OMS/NMS)? • Risk of bewildering and opting for fashion solutions

Enhancing Competitiveness in practice • Analysis made of programmes of OMS (Obj 1), NMS and CANS • Show very little differences in objectives • All include Lisbon agenda • Few real priorities: keep options open • Tendency to go for hard infrastructure • Underrating of capacity building

Public efforts • Each aspect demands considerable efforts of the public sector • Both important investment and important annual outlays • These are confronted with limited resources (NAT + EU) • So harsh choices to be made with or without EMU membership

A few lessons • Learn from bad and best practices of others • Orient your budget to competitiveness oriented outlays and not on redistribution • Within competitiveness make choices and set priorities • In line with national and local potentials

Bulgarian situation • • • Trying to come to grips with challenges EU money is coming in large amounts On conditions: e. g. Co-financing safeguarded Compliance with rules of the game Big risk: Under-utilization due to non compliance

Enhancement of absorption capacity is essential • • • Definition of projects Prioritization of projects Consistency of programme Institutional set-up and staffing Administrative capacity Capacity of beneficiaries and stakeholders to join in

Conclusions • Nominal convergence is easier with a more resilient economy • To that end quick restructuring and diversification is needed • Competitiveness is key to change and hence to real convergence • Absorption capacity is key to enhancement of competitiveness