CESEE should not lose sight of long-term reform priorities in light of the COVID-19 pandemic

OeNB Governor Holzmann opens Conference on European Economic Integration (CEEI) 2020 of Austrian central bank

The COVID-19 pandemic is unprecedented in terms of its global coverage, simultaneity and economic severity. In other words, it is a crisis truly global in nature. As a result, especially small, open and strongly integrated economies – like the Central, Eastern and Southeastern European (CESEE) economies – are highly vulnerable in economic terms, Robert Holzmann, Governor of the Oesterreichische Nationalbank (OeNB), said when opening the two-day Conference on European Economic Integration (CEEI) on November 5, 2020. At this conference, more than 250 participants will explore the role of the EU and global spillovers in the context of the COVID-19 crisis, focusing, in particular, on the CESEE region.

After a brief review of the most recent economic developments in CESEE, Governor Holzmann highlighted the fact that the CESEE region plays a central role in global value chains (GVCs). Despite initial disruptions to GVCs at the onset of the COVID-19 crisis, GVC involvement is still largely considered a stabilizing factor for the economies of the region. Moreover, the CESEE countries are strongly affected by monetary spillovers, in particular from the euro area. In this context, Governor Holzmann noted that a thorough understanding of such spillover effects is crucial for the design of domestic monetary policies that allow the CESEE region to continue to reap the benefits from spillovers while mitigating the associated risks.

The governor of Austria’s central bank also shed light on the importance of EU funds. Even though sovereign borrowing will continue to bear the brunt of the financing of fiscal deficits in all EU Member States, the investment stimulus provided by EU recovery funds is expected to be substantial – and highly welcome – particularly by the CESEE EU Member States, which will be among the largest beneficiaries.

Looking ahead, Governor Holzmann drew the audience’s attention to the most pressing priorities. To mitigate the economic fallout of COVID-19, one of the main challenges will be to use the policy space as efficiently as possible, i.e. by making use of fiscal, monetary and macroprudential policies that put quality over quantity. At the same time, the sizeable structural challenges faced by economies should be addressed as well, which include both the digital and green transitions, to mention just two reform priorities. These and other issues are being discussed at the CEEI 2020 on Thursday, November 5, and Friday, November 6, 2020, by high-ranking representatives of central banks as well as speakers from international organizations, financial institutions and academia.