ZEW Conference: EU Enlargement towards the East and Financial Markets

A premature expansion of the EU towards the East entails economic risks. Particularly the accession of Eastern European states to the Euro Zone should not be done precipitately. This was the prevailing opinion at a conference on "EU Enlargement towards the East and Financial Markets" at the Centre for European Economic Research (ZEW) in Mannheim.

Ulrich Schröder (Deutsche Bank Research) said that the first Eastern European countries might be able to accede to the Euro Zone after three years of Community membership. Nevertheless, he added, these countries should be aware of the fact that the European Central Bank (ECB) would show only little consideration for the special needs of individual states. Mr Schröder also recommended a reform of the ECB structures, otherwise the Central Bank would be too large and its decisions would be determined far too much by the interests of the national Central Bank Presidents. Prof. Paul Welfens of the University of Potsdam was particularly sceptical of any premature enlargements towards the East.

According to his estimation the Euro would come under constant devaluation pressure, if the first EU accessions took place too quickly after the introduction of Euro notes and coins in the year 2002. Despite this cautious approach, many contributions pointed out the success that the East Europeans attained. Claudia Buch of the Kiel Institute for Global Economy and Roland Döhrn (RWI Essen) gave references for the attractiveness of countries such as Hungary, Poland, and the Czech Republic for foreign direct investment. These reliable capital flows render these countries less susceptible to financial and currency crises, said Prof. Renate Ohr of the University of Göttingen.

Michael Schröder (ZEW) finally examined the Eastern European financial markets from the investors' point of view. According to his analysis, investing in the Eastern stock exchange was not worth the effort in the past few years; the ratio between yield and risk was too low. However, the prospects of these markets improved with their growth, increased liquidity and the quality of infrastructures.

Contact

Dr. Friedrich Heinemann, Phone: +49 621 1235-149, E-mail: heinemann@zew.de