A similar message emerges from two papers presented in Session 3, which have scrutinized the factors that contributed to the very rapid credit expansion in the specific cases of Romania 2 and Lithuania 3 , and from the World Bank report 4 presented in Session 6, which provides a detailed overview of the recent credit developments in all ten new EU member states from Central and Eastern Europe. While stressing the demand factors that have fuelled the expansion of credit to the private sector, these papers also point out that the supply side has played a role too: the boost in credit volume was made possible by the privatisation of banks, deregulation of financial systems, and the deepening of the financial markets in the region. Both the above-mentioned World Bank report and the paper 5 prepared by International Monetary Fund staff, also presented in Session 6, were aimed at identifying vulnerabilities and risks that might threaten the financial stability of CEE countries. The former concludes that these countries vary rather widely with regard to the sustainability of the credit growth. While the largest new EU member states seem to be still on the safe side, the Baltic states and, to a lesser extent, the emerging economies of South-Eastern Europe probably witness a credit boom that leads to significant macroeconomic imbalances and might ultimately end in a crisis.
Without any doubt, the distinguished economists and practitioners who have actively taken part in this conference have been its most valuable asset. * Turning to the rapid credit growth that has been observed in CEE economies over the past years, the first question that comes to an economist’s mind is the following: do these developments pose a threat to the macroeconomic stability of the countries of interest? In order to answer that question, one has to ask another: what forces have been the decisive factors behind the rapid credit expansion? Several papers presented at this conference have sought to provide answers to these questions. One approach, followed by the papers 1 presented in the first session, has been to estimate the equilibrium rate of credit growth and check whether the actual growth has been below or above that equilibrium path. The decomposition of credit growth into a convergence and a boom component has shown that for most of the CEE economies, the former component has been dominant, i.e. the rapid credit expansion can to a large extent be attributed to a continuous improvement in the macroeconomic fundamentals and the initial low credit volume in these countries.