economies in the region, or political turbulence, cannot yet be excluded. Despite improved growth prospects, the crisis has shown that the New European growth model, particularly that embodied by the Baltic States, has been largely undermined. The growth model was based on rising domestic consumption fueled by imported savings, large foreign direct investment (FDI) inflows, especially into nonexport-oriented markets such as financial services or real estate, and high imports supported by appreciating real exchange rates. The New European growth model will now need to change because in the post-crisis world inflows of foreign financing are likely to diminish substantially. The new growth model should combine the best characteristics of the New European model—openness to trade, high quality of human capital, and advanced institutional framework—with those of the East Asian model, particularly higher savings rates, controlled exchange rate appreciation, and diversified exports. What specifically should New Europe do to change its growth model to mitigate risks of future crises and rejuvenate growth to ensure continued convergence? And what role could the Group of 20 play to make this happen? As regards the new growth model for New Europe, countries in the region should increase domestic savings, accelerate productivity growth, and strengthen financial market supervision. They should also diversify exports, enhance labor participation, and adopt the euro as quickly as possible. To increase savings, New Europe should tighten fiscal policy, remove tax in-
The Post-Crisis World and the New Growth Agenda for New Europe Marcin Piatkowski
The global economy has avoided a deep depression and a recovery in economic growth has started, especially in large emerging markets. Prospects for growth in New Europe, comprising ten new European Union member states from Central and Eastern Europe, have also improved. Poland, the largest economy in the region, is projected to avoid the recession altogether. With the help of the IMF and the EU, the situation in Hungary and Romania also seems to have stabilized. Glimmers of hope have even appeared for the Baltic States, the hardest hit during this crisis. If all goes well, most countries in the region will soon grow again, although the next wave of a regional crisis, spawned by a return of global risk aversion, deterioration in economic conditions in the weakest Carnegie Mellon University
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