Difficult Choices Ahead for Europe's Policymakers

IMF Managing Director Dominique Strauss-Kahn has called on Europe’s policymakers to work more closely on issues ranging from fiscal policy to financial sector regulation to make Europe’s institutions stronger, more resilient to crisis, and better able to promote growth and prosperity.

He is likely to repeat his call for closer cooperation and further reforms to Europe’s architecture when he travels to Poland and Romania on March 29-31.

During his visit, Strauss-Kahn will speak to students of the Warsaw School of Economics about the transformation their region has undergone since the fall of the Berlin Wall 20 years ago. He will also participate in a TV panel debate, which will be broadcast live from the Royal Castle. The debate, titled "Twenty years of Transformation in Central and Eastern Europe: Fulfilling the European Promise," will also feature former Latvian President Vaira Vike-Freiberga, editor-in-chief of Gazeta Wyborcza Adam Michnik, and Jacques Rupnik, a historian.

Following his visit to Poland, Strauss-Kahn will travel to Bucharest on March 30, where he will address the Romanian Parliament and engage in a debate with students at the Academy of Economic Studies.

New growth model in emerging Europe

Central and eastern Europe was hard hit by the global financial crisis because of the region’s close trade links and reliance on capital flows. Today, the region is in recovery, with the IMF predicting growth in the order of 2 percent of GDP for central and eastern Europe this year.

But even though most countries in central and eastern Europe will see positive GDP growth this year, a return to the high growth rates that preceded the crisis is unlikely. Exports are now recovering, but domestic demand is projected to stay weak.

In order to reignite growth, countries in emerging Europe will need to rethink their growth models. Many countries should reduce their dependence on banking, construction, and real estate?sectors that boomed before the crisis?focusing instead on increasing their presence in world markets.

Controlling debt a key goal

For many countries in Western Europe, the most critical task is to bring public debt back to sustainable levels in order to alleviate serious concerns about economic stability. This will not be an easy task. IMF research shows that public debt is...