That has been the story of the UK economy over the last 150 years. We ran continuous surpluses in the 50 years before the first world war (Chart 1) and built up a large stock of foreign assets. Partly as a result of that, we benefited from a surplus on our investment account for most of the period since the 1870s. There are two key differences between that period of the UK’s investment abroad and the situation today. 100 years ago the developed countries were investing in emerging markets (at the time in the Americas and Australia) which had abundant land and natural resources but scarce capital and so the returns were high. Currently, capital is flowing “uphill” from emerging to mature economies. Secondly, the investors before were mainly in the private sector and were seeking out the best returns on capital. Today the investors are mainly EME central banks and governments and the build up of foreign assets reflects their policy choices. 1  There is some fuzziness at the edges of this definition. Central bank reserves in some countries, which traditionally have been invested mainly in liquid and safe instruments, are increasingly being switched into riskier assets. Also, in some countries, state-owned banks and companies invest in foreign assets where some of the policy issues are the same as for sovereign wealth funds.
One angle of this issue is how the membership might impact the overall economy, and hence what challenges as policy makers we could face. The second angle is more specific, as the economic integration is the stepping – stone towards the monetary integration, and the adoption of the Euro as a single currency. Observing the first angle, one should probably try to draw conclusions from the experience of other peer economies that already went, through this process. Entering the EU, for these countries provided confidence anchor and significant reduction of their risk premiums. It enabled strong influx of capital, which underpinned their real and financial convergence. In some of these countries, the finance flows went to productive and tradable segments, making the economies more resilient to shocks and less vulnerable. But, in some of them the allocation of capital was less conducive to sustainable growth, it created excessive imbalances, high leverage and less room for policy makers. The occurrence of the global crisis was a “natural halt” and painful correction of this unsustainable economic matrices. At this juncture, with the global crisis behind us and all the lessons learned, I think as policy makers we are more knowledgeable to reap the benefits of the EU entrance more wisely, and to better deal with the challenges ahead. At this point I must say, that Macedonian economy is already well integrated both in terms of trade and finance with the EU.