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Conditions for Convergence;

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.

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Conditions for Convergence;

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

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

  3. 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?

  4. 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

  5. Growth Differentials (Standard Deviations)

  6. Real convergence • Main objectiveof • 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

  7. 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

  8. Real convergence in the long term

  9. 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 and where (OMS/NMS)? • Risk of bewildering and opting for fashion solutions

  10. Enhancing Competitiveness in practice • Analysis made of programmes of OMS (Obj1), 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

  11. 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

  12. 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

  13. 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

  14. 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

  15. 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

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