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Current account and public debt in Central and Eastern Europe - an alternative approach

Paper presents econometric panel analysis on the link between balance of payment imbalances [current accountJ and public debt for selected 11 CEE countries during 1995-2015. Growth of the CEE countries, which are in the wake of our interest, is realized through imbalances, particutarty through the current account deficit and the growth of external debt which are both sustainable to the extent of the constant inflow of capital. The instability of "private insurance channel" through sudden stops caused by financial sector frictions and excessive private indebtedness leads to GDP contraction and public debt growth. Thus, the sudden growth of public debt in these countries is primarily a reflection of monetary and financial developments. Decrease in the imbatance of payments and thus decrease in the current account deficit and external debt results in lower growth, weaker impact of pubtic debt cuts, as well as the slowdown of the convergence process itself. In case the public debt issue is caused by macroeconomic, balance of payment imbalances, then, within the framework of the existing liberal institutional EU/EMU framework, the problem can be addressed by further implementing the structural supply-side reforms, changes and austerity measures, within an export-led strategy, basically, as a forced convergence. The motive for this research was the debate on the fiscal policy and the causes of the public debt problems within so called the heterodox and the mainstream economic thinking framework. lf we accept the conceptual stance that public debt is a structural monetary and financial problem, not just the fiscal one, than we can say that the public debt management and public debt problem solving lies within the necessary institutional changes, in other words, in the ability to reconceptuatization the monetary and fiscal sphere and in strengthening domestic savings as opposed to volatile capital inftows. The public debt fluctuations is a necessary regulator of national stability, with the fluctuations of public debt boiling down to the financial sector regulation, as well as the institutional fiscal policy reform, without regard for alternatives chosen - a banking union, fiscal union or by abandoning a "one size fits all" policy.The long_term reduction of public debt is possible by accelerating growth, and accordingty, lower post-crisis growth is an obstacle to significantly reducing public debt as the ratio.

Pubtic debt, current account, external debt, fiscat poticy, panet anatyses

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