Macroeconomic Policy and Institutions During the Transition to European Union Membership

Abstract

A framework is developed for macroeconomic policy analysis in four countries of Central Europe (CE) in transition to EU membership (Czech Republic, Hungary, Poland, and Slovakia). A Multi-Annual Fiscal Adjustment Strategy (MAFAS) and a Pre-Pegging Exchange Rate Regime (PPERR) appropriate for maintaining internal and external balance are described and evidence on budgetary procedures is presented, in comparison with those prevailing in EU member states.

The comparison suggests that the four CE countries are better fit for fiscal stabilization than Greece, Spain and Portugal were in the 1970s. Nevertheless, there is still much room for institutional improvement. A stronger commitment mechanism to fiscal targets at the preparatory stage would improve fiscal performance in all four countries. The adoption of a kind of convergence program would also be made easier if some group procedures can be adopted among them.

A longer version appeared as NBER Working Paper no. 6555, May 1998 and will be published in the 25^th anniversary volume of wnw, Vienna. We thank participants of ACE project conferences at the University of Manheim, in Stary Smokovec, Slovakia, and at the University of Strathclyde. for their comments and Jeff Frankel and Paul de Grauwe for their discussion at the 1995 NBER and 1997 European Summer Institutes respectively. The second author is President of the OECD Development Centre, but the opinions expressed remain personal.