1. Global challenges, EUropean answers, CEE prospects Tamás Szemlér Ph.D, scientific deputy director Institute for World Economics of the Hungarian Academy of Sciences 6th DRC Summer School on Regional Co-operation Budapest, 5-12 July 2009

2. Global challenges Financial and economic crisis Financial and economic crisis About the nature of the crisis – is there something new under the Sun? About the nature of the crisis – is there something new under the Sun? Irregularity or normal feature of the system? Irregularity or normal feature of the system? Short and long term effects Short and long term effects Systemic changes? Systemic changes? The role of the state? The role of the state? Beyond the economy Beyond the economy

3. EUropean answers Adequate reaction speed? Adequate reaction speed? Global challenge – existing EU rules/regulations – basically national answers Global challenge – existing EU rules/regulations – basically national answers Logical? Logical? Efficient? Efficient? Costs? Costs? Danger? Danger? Alternatives? Alternatives?

4. CEE prospects: questions for the long run What are the „national economies”? What are the „national economies”? What possibilities are there for the adaptation to the international environment? What possibilities are there for the adaptation to the international environment? What factors do strengthen/soften the external effects? What factors do strengthen/soften the external effects? What are the consequences… What are the consequences… …on the macroeconomic level? …on the macroeconomic level? …in the microsphere? …in the microsphere? …in the societies? …in the societies? …in the political systems? …in the political systems?

5. Prophecies? – Be careful… „Fitch Affirms Lehman Brothers Derivative Products at 'AAA'; Stable Outlook (Mon Jan 28, 2008)” „Fitch Affirms Lehman Brothers Derivative Products at 'AAA'; Stable Outlook (Mon Jan 28, 2008)” „(…) LBDP's 'AAA' rating is based on its conservative capitalization and collateralization, high-quality counterparties, and restrictive operating guidelines. LBDP is a bankruptcy-remote entity and passes market risk emanating from its transactions to LBSF via 'back-to-back' transactions. Credit risk is retained by LBDP and is supported by a high level of capital in liquid instruments maintained at a third-party custodian, as well as by the strict operating guidelines in place.(…)” „(…) LBDP's 'AAA' rating is based on its conservative capitalization and collateralization, high-quality counterparties, and restrictive operating guidelines. LBDP is a bankruptcy-remote entity and passes market risk emanating from its transactions to LBSF via 'back-to-back' transactions. Credit risk is retained by LBDP and is supported by a high level of capital in liquid instruments maintained at a third-party custodian, as well as by the strict operating guidelines in place.(…)” Source: http://www.reuters.com/article/pressRelease/idUS212058+28-Jan-2008+BW20080128

6. …but sooner or later, the crisis will be over No production factors destroyed No production factors destroyed Very different from e.g. an after-war situation Very different from e.g. an after-war situation The importance of psychological factors The importance of psychological factors What are the actual expectations based on? What are the actual expectations based on? Statistical effects Statistical effects Late 2009: the reference period (e.g. for Q4/Q4 comparisons) will already be a „bad one” Late 2009: the reference period (e.g. for Q4/Q4 comparisons) will already be a „bad one” The statistical effects can substantially help reach the turning point The statistical effects can substantially help reach the turning point After the crisis: economic policies matter After the crisis: economic policies matter What was the state of a given country when the crisis broke out – and in what state will that country be at the end of the crisis? What was the state of a given country when the crisis broke out – and in what state will that country be at the end of the crisis? CEE countries are not uniform! CEE countries are not uniform!

7. THANK YOU FOR YOUR ATTENTION! Questions? Remarks? - Feel free to contact me: tszemler@vki.hu Visit also our website: www.vki.hu