In addition, there were huge quality improvements in products and services, which also contributed to price rises. Last but not least, as these countries were establishing functional market economies, they had to allow for market rather than administrative determination of prices. As prices were previously kept artificially low, these changes caused additional inflationary pressures. The implementation of structural reforms that are prerequisite for real convergence, also creates pressures on the fiscal policy, i.e. the budget deficit and consequently inflation. Part of the costs for the economic reforms are financed from EU pre-accession funds, whose utilization, although it does not imply direct increase of the budget deficit and jeopardizing one of the nominal Maastricht criteria, still could have a significant liquidity effect, creating inflationary pressures. The combined effect of the of these factors on the supply side and on the demand side, is reflected in the relatively high inflation in these countries, the average annual rate of which in the period 1993-2007 in the countries of Central and Eastern Europe ranged from 6% in the Czech Republic to 38.6% in Lithuania. (By mid-90s, in South Eastern Europe, and in Bulgaria and Romania, there were frequent instances of extremely high inflation. In this group, in the period 1998-2007, the average annual inflation rate ranged from 2.1% in Macedonia to 31.1% in Serbia). 7 Such movements caused appreciation of the real exchange rate, which was especially emphasized in the new member states.
According to research, the productivity rise was mostly due to what we call "total factor productivity", that is improvements that can be attributed neither to capital nor to labor, but to specific organizational, technological and institutional changes that result in productivity rises and GDP growth. In the past few years, the new EU member-states register trends of positive influence also of the labor to the economic growth, while among the SEEU countries this contribution is still mainly negative. 3 Structural and institutional reforms also had key influence on the accelerated productivity growth. Transition indicators of the EBRD that are commonly used for assessment of the reforms indicate that the new member-states have already reached the level of the developed countries in the fields of privatization, price liberalization, trade and foreign exchange systems (although they are still lagging behind with respect to the enterprises restructuring, competition protection, banking reform and liberalization of the interest rates and financial markets and institutions, as well as the overall infrastructure). 4 On the other hand, these indicators clearly point to the fact that the SEEU countries, are significantly lagging behind with the reforms in all these areas, except price liberalization and to a certain extent trade and foreign exchange systems. The process of accelerated income increases, that is the process of real convergence, also initiated the process of nominal convergence.