New solutions need to be found for sustainable capital attraction - EC’s Székely

Countries can be divided into several groups according to how fast and to what extent they have been able to return to their pre-crisis economic growth paths, István Pál Székely of the EC Directorate-General of Economic and Financial Affairs noted in his presentation at the conference.

"As concerns the Eurozone, the US and Germany, these three responded to the crisis in a similar way, however Germany's growth (recovery) rate has accelerated recently. However this means only a partial recovery from the setback suffered during the crisis," Székely said.

Eliminating the problems that have arisen as a result of the crisis (e.g. external imbalance) poses a much greater challenge to each country than improving flow indicators, he noted, adding that to make matters worse, some countreis (e.g. Italy) are facing internal structural problems rather than external imbalances.

In addition to external imbalances, poor resource allocation has aggravated the crisis, i.e. capital is invested in areas which do not contribute to growth, Székely explained, mentioning real estate projects which were a less-than-optimal use of banks' invested capital. In addition, most governments are facing a major challenge to improve competitiveness. These countries include Germany, where the economic growth rate fell behind in the 10 years to 2010 and restoring competitiveness has claimed massive resources. However, the results are now beginning to show.

Székely believes declining GDP in the Eurozone periphery has had a lot to do with overconsumption and over-investment in the era preceding the worldwide crisis. During the first half of the crisis, these states have retained an acceptable level of country risk, however this was followed by a sudden surge in CDS as a result of problems directly resulting from earlier imbalances.

The crisis also proved that the convergence patterns shown by the less developed economies of the European Union in the past decades have failed, Székely pointed out in his presentation. “New solutions need to be found by which these countries can attract capital in a sustainable way," he added. Székely also emphasized that this is a problem that applies to the whole of Europe: compared to the USA, the convergence process of the old continent had essentially stopped in the 1970s.

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