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F&D logo
A quarterly magazine of the IMF
  June 2004
Volume 41, Number 2
Europe's Conundrum

Beyond Integration
Michael Deppler
The Director of the IMF's European Department, in a historical overview of the European Union (EU), discusses the reasons for the EU's waning growth and the challenges that face the new 25-country group–in particular, how to stimulate growth while preserving generous social insurance systems. He concludes that what is needed is a forward-looking approach to reform that reconciles solidarity and discipline through policies that generate long-term growth.
(92.6 kb, pdf file)

Euro Turns Five
Hamid Faruqee
Back to Basics describes the euro area's experience after five years with a single currency. It reviews the implications of a single monetary policy for the 12 euro area countries, as well as the euro's implications for members' public finances. It also looks at the expanding role of the euro both in Europe and internationally.
(33.7 kb, pdf file)

Growing Pains
Jean Philippe Cotis
After 30 years during which Europe became increasingly prosperous, its economic performance began to falter in the 1990s. However, within Europe, economic performance has varied widely. In the large economies, per capita output grew more slowly than in the United States, whereas some of the smaller economies–Greece, Luxembourg, and Netherlands–achieved greater success, and Irish GDP per capita rose from a level below the OECD average to one of the highest. Some of the reasons for the disparity in growth rates are differences in labor utilization and labor productivity.
(94.1 kb, pdf file)

Can Europe Afford to Grow Old?
Picture This looks at the implications of population aging in Europe, which is expected to create major fiscal headaches as early as 2010. The biggest problem is unsound pension systems. To address this problem, Europe will have to choose a strategy that may involve increasing pension contribution rates and reducing benefits, among other options.
(155.4 kb, pdf file)

Europe's Quest for Fiscal Discipline
Anthony Annett and Albert Jaeger
The euro area's fiscal policy is underpinned by the Stability and Growth Pact, which requires countries to keep their fiscal deficits below 3 percent of GDP (except in the face of unusually large shocks). But repeated breaches of the pact by France and Germany in recent years have cast down on the pact's future. The authors assess the pact's performance and suggest a reform strategy that achieves a better balance between enforcing discipline and allowing flexibility.
(56.2 kb, pdf file)

How Should the Stability and Growth Pact Be Reformed?
David Walton, Angel Ubide, and Mark Hallerberg
Three outside experts offer very different viewpoints on the future of the Stability and Growth Pact. One says the pact is flawed and that a new one is needed. A second one says the problem with the pact is not in how it is written but in how it is applied. According to an intermediate viewpoint, the pact treats all countries the same without regard to their underlying fiscal institutions. It is fine as it is but, if reformed, should take into account the possible effect on countries’ fiscal institutions.
(34.4 kb, pdf file)

Charting a Course Toward Successful Euro Adoption
Susan Schadler
Unlike the original members of the European Union, the 10 new members are obligated to adopt the euro although they can choose when to do so. The author says the new members stand to benefit from joining the euro area over the long term but must meet rigorous policy requirements, including fiscal adjustment criteria, low inflation, and greater wage and price flexibility.
(106.8 kb, pdf file)

Viewpoints on Enlargement

Accelerate Change

Witold M. Orlowski
A large gap in economic development, productivity, and living standards exists between the established members of the European Union and the eight new Central and Eastern European member countries. According to the Polish President's Chief Economic Advisor, the key to faster growth in the new members is higher domestic saving.
(30.3 kb, pdf file)

New Citizens, Old Borders
Tito Boeri
Reacting to concerns that citizens from the European Union's 10 new member countries could overwhelm their welfare systems, the established members separately established rules to tighten migration or impose other restrictions on the 10. The author says this strategy will hurt growth in the EU as a whole without solving the welfare problem. He proposes that the EU adopt a common, and generous, transitional quota for migration while reforming the welfare system to ensure its future viability.
(322.3 kb, pdf file)


Microfinance and the Poor
Elizabeth Littlefield and Richard Rosenberg
For centuries, the poor have relied on a wide range of informal systems to meet their financial needs. But over the past three decades, microfinance institutions have emerged to provide financial services to low-income clients. For microfinance to achieve its full potential, the full range of microfinance services must become better integrated with mainstream financial systems. Encouraging signs of new partnerships with traditional banks and new techniques are in evidence in many developing countries.
(69 kb, pdf file)

Bank on Wheels
G. Nguyen Tien Hung
Extreme poverty still exists in parts of Vietnam, much of it in remote mountain villages. One problem related to extreme poverty is a lack of access to credit. In 1998, the Vietnam Bank for Agriculture and Rural Development launched a microfinance project–mobile banking–to serve remote areas. It is financially self-sustaining and provides the services that Vietnam’s poor people need. Barely five years in operation, the program has proved to be a successful experiment.
(76 kb, pdf file)

Bank Restructuring

View from the Inside
Chungwon Kang
Even before the eruption of the Asian banking crisis in 1997, Seoul Bank in Korea was in bad shape. As one of the country's most distressed commercial banks, it was earmarked for restructuring and privatization. The author, selected to manage Seoul Bank's restructuring, shares his experience of preparing it for sale.
(46.4 kb, pdf file)

F&D Anniversary

40 Years On
Ian S. McDonald
On the fortieth anniversary of Finance & Development, a former editor-in-chief reviews the magazine's evolution.
(144.8 kb, pdf file)


From the Editor
(79.6 kb, pdf file)

Letters to the Editor
Infections, epidemics, and pandemics; Culture matters more than institutions; Global surveillance—for whose benefit?
(33.3 kb, pdf file)

In Brief

News from international agencies
Push to revive stalled trade talks; IMF ready with trade cushion; MDGs (Millennium Development Goals) proving elusive; Waste plagues small island states; Car crashes cost billions.
(32.1 kb, pdf file)

People in Economics

Budget Guru Takes a Stand
Elisa Diehl profiles Alice Rivlin, who has spent more than 30 years in service in the U.S. government. She was the founding director of the Congressional Budget Office and also served in the Office of Management and Budget and the U.S. Federal Reserve. She comments on the European Union’s fiscal situation as well as the U.S. budget deficit.
(98.4 kb, pdf file)

Book Reviews

Inflation Targeting in the World Economy, Edwin M. Truman

Indonesian Destinies, Theodore Friend

The Political Economy of Emerging Markets, Javier Santiso
(53.2 kb, pdf file)

Country Focus

India's economy is rebounding strongly, providing a golden opportunity to tackle fiscal challenges decisively.
(28.3 kb, pdf file)

Straight Talk

Why Are Structural Reforms So Difficult?
Raghuram Rajan explains that reforms are hard to sell because their benefits aren't always as obvious as their short-term costs. Success, he says, depends on timing, the sequence of reforms, and the compensation of "losers."
(76 kb, pdf file)