Improving European Integration and Competitiveness...PRESENTATION BY VALERIO DE MOLLI AT THE FORUM: OBSERVATORY ON THE NEW EUROZONE Improving European Integration and Competitiveness

PRESENTATION BY VALERIO DE MOLLI

AT THE FORUM:

OBSERVATORY ON THE NEW EUROZONE

Improving European Integration and Competitiveness

“Sofitel Hotel”, Budapest – June 16, 2010 Reproduced by The European House-Ambrosetti for internal use only.

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Budapest, June 16, 2010

OBSERVATORY ON THE NEW EUROZONEImproving European Competitiveness and Integration

Valerio De Molli

OBJECTIVES, METHODOLOGICAL APPROACH AND MAIN FINDINGS ON THE PROJECT

© 2010 The European House-Ambrosetti S.p.A. - ALL RIGHTS RESERVED. This document was prepared by The European House-Ambrosetti S.p.A. for the use of the client to whom it is addressed. No part of it may be copied or made available in any way to third parties or used by them without The European House-Ambrosetti S.p.A.’s prior written consent. This document supported a presentation and should not, therefore, be considered without the accompanying oral comments.

© 2010 AmbrosettiObservatory on the New EurozoneAgenda

Overview of the Project

New Europe Countries Comparative Analysis: 2010 Update

Eurozone Enlargement: the current situation for the Czech Republic, Poland and Hungary

Main findings of the “Adoption of the Euro in Hungary” survey

2

2

© 2010 AmbrosettiObservatory on the New EurozoneMission of the “Observatory on Europe”

The Observatory on Europe aims to …

… pragmatically contribute to the success of the European

Union, providing its political and economic leaders, as well as

its citizens, with high quality studies, analyses and proposals in

order to help them build a stronger Europe, from economic,

3

social and political standpoints

© 2010 AmbrosettiObservatory on the New EurozoneProject’s Milestones

Observatory onEurope 2009

Presentation Forum 2011


Presentation ForumBrussels, December, 2010


Presentation ForumBrussels, January, 2011

Observatoryon the New Eurozone

Presentation ForumBudapest, Jun. 16th, 2010

2009

2010



Presentation ForumBrussels, Apr. 17th, 2007

Brussels, March 24th, 2009

Observatory

2011

2008

42005

2006

2007

Europe 2005Presentation Forum

Brussels, Dec. 15th, 2005

Observatoryon New EuropePresentation Forum

Budapest, Dec. 4th, 2008

3

© 2010 AmbrosettiObservatory on the New EurozoneObservatory on Europe 2008/2009 – Objectives

To analyze and measure the level of competitiveness of four countries (Hungary, the Czech Republic, Slovenia and

Observatory on New Europe (2008)

four countries (Hungary, the Czech Republic, Slovenia and Slovakia) belonging to the so called “New Europe”, four years after EU accession

To outline the best evidence available to show how to speed up the integration process between “new entrants” and the core Europe

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the core Europe

© 2010 AmbrosettiObservatory on the New EurozoneObservatory on Europe 2010 – Objectives

To elaborate the updated Enlargement economic evaluation analysis, previously presented at the “Observatory on New Europe” Forum held in

Observatory on the New Eurozone (2010)

Budapest on December 4th, 2008

To elaborate an ad hoc analysis concerning the Eurozone enlargement to the Czech Republic, Hungary and Poland:

steps to be taken and timing, constraints and opportunitiesrelated to the Euro adoption

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“lessons learned” from most recent experiences of Euro adoption (Slovakia and Slovenia)

To discuss about the impacts of the crisis and the current financial turmoil on the Eurozone Enlargement process

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© 2010 AmbrosettiObservatory on the New EurozoneThe Project Methodology – The Advisory Board (1/3)

The European House-Ambrosetti

ADVISORY BOARD andSCIENTIFIC COMMITTEE

Fi l R tFinal ReportAnalysis and

Recommendations

FORUM

FORUM

Scientific Committee

+The European

House-AmbrosettiProject Team

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FORUM

© 2010 AmbrosettiObservatory on the New EurozoneThe Project Methodology – The Advisory Board (2/3)

Scientific Committee “Observatory on the New Eurozone”

Vladimír Dlouhý International Advisor at Goldman Sachs; Professor of Macroeconomics and Economic Policy, Charles University in Prague; Former Minister of Economy, Czechoslovakia; Former Minister of Industry and Trade, The Czech Republic

Pé M d

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Péter Medgyessy Former Prime Minister of the Republic of Hungary

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© 2010 AmbrosettiObservatory on the New Eurozone

Francis Bailly Senior Business Executive and Director European Affairs, GE International

Giovanni Castellaneta Chairman, SACE Al d C ll

The Project – Methodology: The Advisory Board (3/3)

Business Leaders

and Alessandro Castellano Chief Executive Officer, SACE

Bernd Geilen General Manager, Ing Direct Riccardo Illy President, Illy Group

and Licerio Degrassi Chief Finance Officer, Illy Group Roberto Sestini Chairman, SIAD

and Bernardo Sestini Chief Executive Officer, SIAD

Tomas Spurny Chief Executive Officer, CIB Bank

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and Eduardo Bombieri Deputy Chief Executive Officer, CIB Bank Hisashi Takeuchi Chief Executive Officer, Magyar Suzuki

and László Urbán Deputy Chief Executive, Magyar Suzuki Paolo Ruzzini Chairman and CEO, Slovenske Elektrarne Stefano Venturi Vice President, Public Sector Europe, Cisco Systems Italy

and Diogo Vasconcelos Distinguished Fellow - Internet BusinessSolutions Group, Cisco EMEA






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© 2010 AmbrosettiObservatory on the New EurozoneComparative Analysis – New Europe Countries

The analysis focused on 4 dynamic “New Europe Countries” (NECs)selected because of their geographical proximity and characteristics in

terms of population and GDP

Czech Republic (CZ)

Hungary (HU)

New Europe Countries (NECs)

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Slovakia (SK)

Slovenia (SI)

© 2010 AmbrosettiObservatory on the New EurozoneComparative Analysis – Aims

1. Which is the most competitive NEC at the present time?

2. Which NEC has improved more its competitiveness level since the EU accession?

3. In which areas have NECs benefited the

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most from the 2004 Enlargement?

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© 2010 AmbrosettiObservatory on the New EurozoneComparative Analysis – General Framework

KPIs

Enlargement Evaluation:

GOAL #3

Trend Competitive Evaluation:

GOAL #2

Current Competitive Evaluation:

GOAL #1

Current Analysis Trend Analysis

1 2 3

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Evaluation:NECs vs EU-15 av.

Evaluation:among NECs

Evaluation:among NECs

In which areas have “New Europe Countries” benefited

the most from the 2004 Enlargement?

Which is the most competitive “New Europe Country” at the

present time?

Which “New Europe Country” has improved more its

competitiveness level since the EU accession?

© 2010 AmbrosettiObservatory on the New EurozoneComparative Analysis – Methodological Approach – Time Horizon

Trend Analysis

May 1st , 2004Accession to the EU

Today

Selected Time Horizon:2002 – 2009 or Latest data available

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2002 2004 2009 or Latestdata

availableCurrent Analysis

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© 2010 AmbrosettiObservatory on the New EurozoneComparative Analysis – Methodological Approach – Select KPIs (1/2)

AREA KPI Years Source Best if

1. GDP Growth Rate 2002-2009 Eurostat +

2. GDP per Capita 2002-2008 Eurostat +

3 E l t R t 2002 2008 E t t +

Economic Growth 3. Employment Rate 2002-2008 Eurostat +

4. Labour Productivity 2002-2009 Eurostat +

5. Inflation Rate 2002-2009 Eurostat -

6. Government Debt 2002-2009 Eurostat -

7. Public Balance 2002-2009 Eurostat -

8. Exports and Imports of Goods and Services 2002-2009 Eurostat +

9. External Balance of Goods and Services 2002-2009 Eurostat +External

Openness

Macroecono-mic Stability

Growth

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10. FDI Stocks 2002-2008 UNCTAD +

11. Time to Start a Business 2004-2009 World Bank -

12. Cost of Start a Business 2004-2009 World Bank -

13. Total Tax Rate 2006-2009 World Bank -

14. Time to Enforce a Contract 2004-2009 World Bank -

Business Environment

Openness

Best if + : the higher the KPI’s value, the higher the “competitiveness” scoreBest if - : the higher the KPI’s value, the lower the “competitiveness” score

© 2010 AmbrosettiObservatory on the New EurozoneComparative Analysis – Methodological Approach – Select KPIs (2/2)

AREA KPI Years Source Best if

15. Research and Development Expenditure 2002-2008 Eurostat +

16. ICT Expenditure 2002-2008 Eurostat +

17 H R i S i & T h l 2002 2008 E t t +Innovation 17. Human Resources in Science & Technology 2002-2008 Eurostat +

18. High-tech Exports 2002-2008 Eurostat +

19. Broadband Penetration Rate 2004-2009 Eurostat +

20. Level of Internet Access – Households 2004-2009 Eurostat +

21. E-government On-line Availability 2004-2009 Eurostat +

22. Energy Intensity of the Economy 2002-2007 Eurostat -

23. Energy Dependency 2002-2007 Eurostat -Energy

Innovationand

Technology

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24. Electricity Prices for Industrial Consumers 2002-2009 Eurostat -

25. Electricity Generated from Renewable Sources 2002-2010 Eurostat +

gy

Best if + : the higher the KPI’s value, the higher the “competitiveness” scoreBest if - : the higher the KPI’s value, the lower the “competitiveness” score

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© 2010 AmbrosettiObservatory on the New EurozoneComparative Analysis – Methodological Approach – How Scores Are Calculated (1/2)

Countries’ performance in each KPI is evaluated from a competitiveness standpoint. This means that the first step was defining “pro-competitiveness behaviour” for each KPI. For instance, from a competitiveness standpoint it is better to pay less taxes therefore the lowercompetitiveness standpoint, it is better to pay less taxes, therefore the lower the Total Tax Rate, the higher the “competitiveness” score

For each KPI, the best performer among the NECs received a score of 5 stars (max score) and the worst performer received a score of 1 star (min score)

The remaining NECs’ scores varied between 1 and 5, according to their relative

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g , gperformance

© 2010 AmbrosettiObservatory on the New EurozoneComparative Analysis – Methodological Approach – How Scores Are Calculated (2/2)

The “scale” drove the scoring process and was calculated as follows:

scale = (max value – min value) / (max score – min score)

Ha ing fi ed the “scale” each State’s sco e as estimated as follo s Having fixed the “scale”, each State’s score was estimated as follows:

= [(country value – min value) / scale] + 1

The Areas’ scores (i.e. each NECs level of competitiveness in that Area) were calculated as average of the KPIs’ scores

X.X

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The Final score was calculated as average of the Areas’ scores

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The following slides are just aThe following slides are just a selection of the complete analysis you can find included in the Observatory on the New Eurozone Full Report*

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(*) The Observatory on the New Eurozone Full Report is available for the Forum Participants and can also be downloaded at www.ambrosetti.eu


2009 E 2002 2009 % h

Labour Productivity(GDP at current market prices per person employed)

Comparative Analysis – Economic Growth

KPI

4TRENDCURRENT

EXAMPLE

36.07728.991 26.255

23.459

53.094

36%

40%

64%

128%

Sl i

Hungary

Czech Republic

Slovakia

2009, Euro 2002-2009, % change

5.0

2.2

1.2

1 05 0 2 8 1 9 1 0

20

Slovenia Slovakia CzechRepublic

Hungary EU-27 11%

36%

EU-15

Slovenia

Source: The European House-Ambrosetti re-elaboration of Eurostat data, 2010

1.0

= score

5.0 2.8 1.9 1.0

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© 2010 AmbrosettiObservatory on the New EurozoneCurrent Competitive Evaluation – Final Ranking

Current Competitive Evaluation(2009 or latest data available)

= comparison5.0MaxScore

1

+0.2

-0.3

-0.1

= comparisonone year later3.7

3.0

2.7 2.6

Score

+0.3

21

Slovenia CzechRepublic

Slovakia Hungary

Source: The European House-Ambrosetti re-elaboration

1.0Min

Score


4.0

5.0

Current Competitive Evaluation – Hungary (performance in each area)

M i

Economic Growth

4.1Slovenia

Sl i

1

1.0

4.3

2.32.0

2.9

0.0

1.0

2.0

3.0

External

Macroeconomic Stability

Innovation and

Energy 4.2Slovenia

Hungary

3.9

Slovenia4.4

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3.1



OpennessTechnology

Average score: 2.6/5Slovakia

3.3Slovenia

3.9

= best performer

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© 2010 AmbrosettiObservatory on the New EurozoneTrend Competitive Evaluation – Final Ranking

Trend Competitive Evaluation(2002 - 2009 or latest data available)

5.0MaxScore

2

3.9

2.7 2.5 2.3

Score

23


Slovakia Slovenia CzechRepublic

Hungary1.0

MinScore


4 0

5.0

Trend Competitive Evaluation – Hungary (performance in each area)

M i

Economic Growth

2

5.0 Slovakia

1.01.0 2.4

3.73.0

0.0

1.0

2.0

3.0

4.0

External

Macroeconomic Stability

Innovation and

Energy3.5

Slovakia

Hungary

4.1

Slovakia

3.4

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2.8



OpennessTechnology

Average score: 2.3/5

3.9Slovakia

Slovakia

= best performer

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© 2010 AmbrosettiObservatory on the New EurozoneEnlargement Evaluation – Overall Picture

Progress made after the accession to the EU: 2004-2009 or latest data available3

Vs Economic Macro Extern Business Innovation and % of GreenVs Economic Macro Extern Business Innovation and % of Green

EU-15 Member States AverageTren

d

EconomicGrowth

Macro.Stab.

Extern. Openn.

BusinessEnvir.

Innovation and Technology Energy % of Green

ArrowsEconomicGrowth

Macro.Stab.

Extern. Openn.

BusinessEnvir.

Innovation and Technology Energy % of Green

Arrows

CZ

HU

SK

64%

68%

76%

25Source: The European House-Ambrosetti re-elaboration

= The Country performed better than the EU-15 average during the selected time horizon

= The Country performed worse than the EU-15 average during the selected time horizon

Green arrowRed arrow

% ofGreen Arrows

% ofGreen Arrows

SI 84%

81%68%62.5%67%75%87.5%






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14

© 2010 AmbrosettiObservatory on the New EurozoneEuro Area enlargement – The Eurozone, as of 2010

1999 Belgium, Germany, Ireland, Spain, France, Italy, Luxembourg, the Netherlands, Austria, Portugal and Finland

2001 Greece

2002 Introduction of euro banknotes and coins

2007 Slovenia

2008 Cyprus, Malta

2009 Slovakia

2011 Estonia

...

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Eurozone

EU Member States that havenot yet adopted the euro

EU Member States that havechosen to be excluded

2011 Estonia


The Member States that joined the EU in 2004 and 2007 are part of EMU - which means that they coordinate their economic policymaking with the other EU Member States and that their central banks are part of the European System of Central Banks

However, as they did not join the Euro Area immediately on accession, their official

Euro Area enlargement – Accession Obligations (1/3)

status until they adopt the single currency is “Member States with a derogation”

This status is granted by the Act of Accession and obliges them to become full members of the Euro Area eventually

The new Member States did not join the Euro Area immediately upon accession because they did not meet the convergence criteria. The Treaty of Accession therefore allows them time to undertake the adjustments needed to achieve convergence

28

Participation in the Eurozone is mandatory: the clauses that permitted the United Kingdom and Denmark not to adopt the euro were provided under specific circumstances and were not applicable to the new Member States

15


The convergence criteria — the Maastricht criteria — are the economic targets and institutional changes that a country must achieve before adopting the single currency and entering the Euro Area

Euro Area enlargement – Accession Obligations (2/3)

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Source: “One currency for one Europe. The road to the euro”, European Commission

© 2010 AmbrosettiObservatory on the New EurozoneEuro Area enlargement – Accession Obligations (3/3)

According to the Eurobarometer survey, the majority of new Member States’ citizens believe that their nation can choose whether or not to adopt the euro, even if the Accession Treaty obliges all new Member States to join the Euro Area. In fact, more than 6 in 10 respondents (63%) hold this opinion and only 3 in 10 (29%) have th t ithe correct view

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43 42 41 39 36 34

2421

Can Member States choose whether or not to adopt the euro?% of correct (“NO”) answers

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Source: “Introduction of the euro in the new Member States, Wave 9”, Flash EB Series #280, 2009

Average HU CZ BG LV LT EE RO PL

16


CZECH REPUBLIC 2004 2005 2006 2007 2008 2009

MAASTRICHT CRITERIA

G t d fi it % f GDP 3 0 3 6 2 6 0 7 2 7 5 9

Convergence criteria: current situation for the Czech Republic (1/5)

Government deficit as % of GDP -3.0 -3.6 -2.6 -0.7 -2.7 -5.9

Target (%)

Government debt as % of GDP 30.1 29.7 29.4 29.0 30.0 35.4

Target (%)

Inflation rate 2.6 1.6 2.1 3.0 6.3 0.6

Target (%) 2.2 2.5 2.9 2.8 4.1 0.5

Long-term interest rate 4.9 3.5 3.8 4.3 4.6 4.8

Target (%) 6.3 5.4 6.2 6.4 6.2 6.5

-3.0

60.0

31

g ( )

ERM II participation No No No No No No

Sources: The European House-Ambrosetti re-elaboration on Eurostat data, 2010; “European Economic Forecast, autumn 2009”, DG Economic and Financial Affairs

The marked items are those which met the convergence criteria

© 2010 AmbrosettiObservatory on the New EurozoneConvergence criteria: current situation for the Czech Republic (2/5)

Distance from the target (target=100), average 2007-2009

>100 = out of target<100 = in target

= comparisonwith average

100Target

103.3

52.4

133.8

71.7

2004-2006

+1.1

+2 9

+51

+3.6

32

area

Government deficit as % of GDP

Government debt as % of GDP

Inflation rate Long-term interest rate

+2.9

17


110


Euro/Czech Koruna exchange rates (Jan. 2004=100), Jan 2004 - May 2010

80

85

90

95

100

105

-21.58

33

70

75

2004

M01

2004

M03

2004

M05

2004

M07

2004

M09

2004

M11

2005

M01

2005

M03

2005

M05

2005

M07

2005

M09

2005

M11

2006

M01

2006

M03

2006

M05

2006

M07

2006

M09

2006

M11

2007

M01

2007

M03

2007

M05

2007

M07

2007

M09

2007

M11

2008

M01

2008

M03

2008

M05

2008

M07

2008

M09

2008

M11

2009

M01

2009

M03

2009

M05

2009

M07

2009

M09

2009

M11

2010

M01

2010

M03

2010

M05

Source: The European House-Ambrosetti re-elaboration on Eurostat data, 2010


The Czech Republic was one of the best economic performers in Centraland Eastern Europe in recent years. Strong fundamentals have helped the Czech economy to face the global financial crisis, although a large loss of output could not be avoided


Inflation remained low for most of the considered period, with the exception of 2008. In 2009 there has been a marked fall in inflation to values allowing fulfillment of the price stability criterion

The public finances are worsened considerably in 2009. The general government deficit is set to widen from 2.7% of GDP in 2008 to 5.9% of GDP in 2009, mainly as a result of the economic downturn. The structural deficit should also increase, reflecting anti-crisis measures. The public finance deficit became the main barrier to the fulfillment of the Maastricht convergence criteria

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to the fulfillment of the Maastricht convergence criteria

The criterion on long-term interest rates is being – and very probably will continue to be – fulfilled without any problems

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The increased volatility of the koruna exchange rate owing to the globalfinancial crisis is an adverse factor: fulfilling the exchange rate criterion after the country potentially joins ERM II may be very difficult under these conditions


The periodic document “Assessment of the Fulfillment of the Maastricht Convergence Criteria and the Degree of Economic Alignment of the Czech Republic with the Euro Area”, jointly prepared by the Ministry of Finance of the Czech Republic and the Czech National Bank and approved by the Government on 21 December 2009, states that it is very improbable under current conditions that the Czech Republic will be able to meet all Maastricht convergence criteria in the medium-

35

term horizon

In fact, the Government agreed with the recommendation of the Ministry of Finance of the Czech Republic and the Czech National Bank not to set a target date for Euro Area entry yet and not to attempt to enter ERM II during 2010

Source: Ministry of Finance of the Czech Republic


In May 2009, half of the respondents said they would be happy abouta changeover, and four months later that number has dropped to 37% (-13 percentage points)

Citizens’ support for replacing the national currency by the euro

Are you personally happy or not that the euro could replace the Czech koruna?y p y ppy p

36


DK – don’t know; NA – not answered

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POLAND 2004 2005 2006 2007 2008 2009

MAASTRICHT CRITERIA

Government deficit as % of GDP 5 7 4 1 3 6 1 9 3 7 7 1

Convergence criteria: current situation for Poland (1/4)


Target


Target (%)

Inflation rate 3.6 2.2 1.3 2.6 4.2 4.0

Target (%) 2.2 2.5 2.9 2.8 4.1 0.5


Target (%) 6.3 5.4 6.2 6.4 6.2 6.5

-3.0%

60.0

37

g ( )




© 2010 AmbrosettiObservatory on the New EurozoneConvergence criteria: current situation for Poland (2/4)




100Target

141.1

79.6

145.9

92.7

2004-2006

-7.8

+1.5

+53

-3.9

38

garea




20


120

Convergence criteria: current situation for the Poland (3/4)

Euro/Polish Zloty exchange rates (Jan. 2004=100), Jan 2004 – May 2010

80

90

100

110

-13.92

39

60

70

2004

M01

2004

M03

2004

M05

2004

M07

2004

M09

2004

M11

2005

M01

2005

M03

2005

M05

2005

M07

2005

M09

2005

M11

2006

M01

2006

M03

2006

M05

2006

M07

2006

M09

2006

M11

2007

M01

2007

M03

2007

M05

2007

M07

2007

M09

2007

M11

2008

M01

2008

M03

2008

M05

2008

M07

2008

M09

2008

M11

2009

M01

2009

M03

2009

M05

2009

M07

2009

M09

2009

M11

2010

M01

2010

M03

2010

M05


© 2010 AmbrosettiObservatory on the New EurozoneConvergence criteria: current situation for Poland (4/4)

Poland stands out as the only EU economy to avert recession in 2009, growing 1.7%. A combination of minimal macroeconomic imbalances, limited export dependence, a flexible exchange rate and timely fiscal and monetary stimulus helps explain the country’s outperformance

The Government deficit had been reduced to below 2% of GDP in 2007, but grew substantially in 2009. As a consequence of high deficits, gross debt increased from slightly above 47% of GDP in 2008 to 51% in 2009

According to the Euro Convergence Plan sent to the European Commission on February 2010, Poland plans to fulfill the EC requirement of lowering the budget deficit to under 3% of GDP in 2012 (2.9%) or, in the worse case scenario, in 2013.

40

deficit to under 3% of GDP in 2012 (2.9%) or, in the worse case scenario, in 2013. Government officials have recently said 2015 is a realistic date for Euro adoption, but the plan mentions no date for Euro Area entering

Sources: Roubini Global Economics; “The convergence programme, update 2009”, Republic of Poland, Feb. 2010

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© 2010 AmbrosettiObservatory on the New EurozoneCitizens’ support for replacing the national currency by the euro

Are you personally happy or not that the euro could replace the zloty?

In May 2009, more than half of the respondents said they would be happyabout a changeover (52%), and four months later that number has droppedto 45% (-7 percentage points)

y p y ppy p y

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HUNGARY 2004 2005 2006 2007 2008 2009

MAASTRICHT CRITERIA

G t d fi it % f GDP 6 4 7 9 9 3 5 0 3 8 4 0

Convergence criteria: current situation for Hungary (1/5)


Target (%)


Target (%)

Inflation rate 6.8 3.5 4.0 7.9 6.0 4.0

Target (%) 2.2 2.5 2.9 2.8 4.1 0.5


Target (%) 6.3 5.4 6.2 6.4 6.2 6.5

-3.0

60.0

42

g ( )




22

© 2010 AmbrosettiObservatory on the New EurozoneConvergence criteria: current situation for Hungary (2/5)


241.9

120 +54


100Target

142.2

120.6 125.7

-120

+17

+54

+3.3

2004-2006

43

Targetarea






120


Euro/Hungarian Forint exchange rates (Jan. 2004=100), Jan 2004 - May 2010

80859095

100105110115

+4.71

44

707580

2004

M01

2004

M03

2004

M05

2004

M07

2004

M09

2004

M11

2005

M01

2005

M03

2005

M05

2005

M07

2005

M09

2005

M11

2006

M01

2006

M03

2006

M05

2006

M07

2006

M09

2006

M11

2007

M01

2007

M03

2007

M05

2007

M07

2007

M09

2007

M11

2008

M01

2008

M03

2008

M05

2008

M07

2008

M09

2008

M11

2009

M01

2009

M03

2009

M05

2009

M07

2009

M09

2009

M11

2010

M01

2010

M03

2010

M05


23


The global financial crisis had a severe effect on Hungary, that wasthe first European Union country to obtain an IMF-led bailout in 2008

In recent years Hungary has seen its debt burden expand and its long-term interest rate exceed the Euro Zone average


term interest rate exceed the Euro Zone average

While declining in recent years, the inflation rate is still very high if compared to the convergence target

However, as a result of the fiscal consolidation program started in the second half of 2006, the general government deficit dropped from 9.3% in 2006 to almost half that level, 5%, in 2007; in 2008 balance improvement of more than 1 percentage point was achieved. In 2009, despite the

45

unfavorable economic environment, the deficit did not increase significantly from the level reached in 2008 (3.8%)

The general government debt as a ratio of GDP is instead increased in 2009

Source: “Updated convergence programme of Hungary, 2009-2012”; government of the Republic of Hungary, Jan. 2010


Following the abolition of the fluctuation band in February 2008*, the HUFexchange rate first strengthened, then weakened considerably. Thus the Forint exchange rate achieved both the strongest and weakest levels of the past decade in less than one year between mid-2008 and early 2009. As a result of the

li ti f th i t ti l fi i l k t ll th t k b


normalization of the international financial markets as well as the measures taken by Hungarian economic policy the Forint became stable again

The elimination of the fixed exchange rate trading band has pushed the participation in the ERM II (and consequently the introduction of the Euro) into the future

However the Government considers the adoption of the Euro as a priority and the fiscal path of the convergence program sets the target of reducing the

46

the fiscal path of the convergence program sets the target of reducing the general government deficit below 3% by 2011. Nevertheless, no target date for the Euro adoption has been set yet

Source: “Updated convergence programme of Hungary, 2009-2012”; government of the Republic of Hungary, Jan. 2010; “The Euro introduction and creditworthiness”, R&I, Sept. 2008

(*) Without participating in ERM II, Hungary independently set a fixed exchange rate against the Euro and maintained a trading band permitting fluctuations 15% above or below the fixed rate

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© 2010 AmbrosettiObservatory on the New EurozoneCitizens’ support for replacing the national currency by the euro

More than half of the respondents would welcome the replacement of theirnational currency by the euro (54%), while about 4 out of 10 would not (38%)

Are you personally happy or not that the euro could replace the Hungarian forint?y p y ppy p g

47








48

25


Do you think the introduction of the Euro would have positive or negative consequences for Hungary?


5.291 6

2009 4.451

(very negative) (very positive)

Which consequences would the introduction of the Euro have for Hungarian companies in the medium to long term?

49

5.291 6

2009 4.361

(very negative) (very positive)


In which year do you think the Euro will be introducedin Hungary?


54,5%

36,4%

50

9,1%

2012-2013 2014-2015 2016 or later

Documents

Improving European Integration and Competitiveness...PRESENTATION BY VALERIO DE MOLLI AT THE FORUM: OBSERVATORY ON THE NEW EUROZONE Improving European Integration and Competitiveness