The region is mostly exposed to the European markets, but to the extent that the US tightening affects European financial markets it may have negative implications for the region through the interest rate or liquidity channel. Having in mind the state of the fiscal finances particularly vulnerable segment seems to be the government sector. The screening of the fiscal position of the countries in the region, shows that without doubts financial crisis took a toll on the fiscal positions of the countries. Against the background of countercyclical fiscal policy headline balances deteriorated sharply and the public debt went on a rising track. The deterioration in the fiscal position and lack of fiscal space (due to low initial space before the crises) emphasized the need for consolidation. Most of the countries of the region recognized it and embarked on the consolidation path. In the 2013-2015 period the budget deficit figures show that nine out of fourteen countries of the region have already reduced the deficit level compared to the 2008-2012 period. The other five countries (Macedonia, Albania, Serbia, Bulgaria and Slovenia) increased the deficit  reflecting idiosyncratic factors, countercyclical policy (Macedonia, Bulgaria), or recognition of implicit liabilities (emergency recapitalization of the country's banks in Slovenia). The same dynamics is more or less mirrored by the government debt data. After the strong initial debt rise, the consolidation phase imposed slower borrowing pace, however in most of the countries the debt continued to rise.
Chart 10: External positions and assets prices indicators y/y growth rates of stock market indices  Current account deficit in % of GDP Region  CEE  SEE  SRB  Baltics  ROM  HUN  CRO  MKD  BIH  SLO  BUL  POL  15.0  5  10.0 0 5.0 -5  0.0 -5.0  -10  -10.0 -15  -15.0 -20.0  -20 2007-2004  2012-2007  2015-2013  -25.0  AVERAGE(2009-2012)  -25  IIP, net as % of GDP Region  CEE  AVERAGE(2013-2016)  Real Estate Prices, y/y change in % SEE  Baltics  0  BUL  CZR  EST  CRO  LAT  LIT  HUN  POL  ROM  SLO  MKD  SRB  12  -10  10 8  -20  6 -30  4 2  -40  0 -50  -2 -4  -60  -6 -8  -70 2007-2004  2012-2008  2015-2013  average 2010-2013  average 2014-2016  Source: International Monetary Fund, Balance of Payments Statistics, WEO October 2016 Database, Eurostat. Despite the absence of sizable inflows, relatively high external financial exposure of the region underlines the risks in case of global tightening of the financial conditions in the context of tightening of the US monetary policy or a “surprise” tapering by ECB.