Zombie economies and threats to EU stability

Sean O’Grady writes about the financial fragility of the eastern European economy in his Independent column - I produced a short revision presentation this last week available here - and describes Turkey, Ukraine, Serbia, Latvia, Romania as zombie states “in the process of receiving IMF assistance to rescue their finances. More will surely follow.”

A key point to take away from the article is the varying extent to which countries inside the EU single market are dependent on trade as a source of income for their circular flow. O’Grady writes that

“The Germans are top among the older established large economies; 30 per cent of their income derives from exports. In Japan it is a surprisingly low 10 per cent: in the US and UK around 15 per cent. Now consider how much eastern Europe relies on exports. The Czechs’ reliance on exports – 80 per cent of GDP – makes most countries look isolationist. The Hungarians and Poles are also heavily reliant on trade. So the 13 per cent decline in world trade predicted by the OECD will have a potentially devastating impact on those already bruised economies.”

This makes it even more important for the EU authorities to be strong in preventing a descent into protectionism within Europe’s boundaries.

The FT today reports that the IMF is encouraging eastern European states to join the euro