We grow together, together we grow

Economic integration, improved governance, the human dimension: challenges and opportunities for the EU Strategy for the Danube Region were at the centre of debate at its 3rd Annual Forum in Vienna.

Economic integration – where if not in the Danube region

For economists, the Danube region with its pronounced diversity is a clear case for deeper integration. Heterogeneity and different levels of development may prove tricky to deal with in terms of policies, but they are also an invitation to make use of different location factors, and to exploit them for new products and value chains – thus, to create prosperity and growth. And it works. Seen in a longer perspective, the Danube region is a region of convergence, where the gaps between parts that represent some of the richest and most advanced regions in Europe and parts that are some of its poorest, are narrowing down. As Michael Landesmann from Vienna’s Institute for International Economic Studies pointed out when presenting findings of an ongoing “State of the Region” research effort (involving a transnational scientific consortium), convergence is even more pronounced, the further away from the richest parts a less developed region is.

A closer look, however, reveals some structural problems that inhibit the full unleashing of the region’s potential for growth. The repercussions of the financial crisis that hit most of the Danube region hard only underscored these factors. Take the extraordinary fragmentation of markets, for example. Different languages and legal systems as well as low labour mobility all work as barriers to doing business and tapping market potentials across the border; the EU internal market notwithstanding. Add to this the weaknesses that still exist in the transport and energy infrastructures of the region and its often poor logistics. Institutions and regulatory frameworks also matter, from the cost of starting a business to protection of property rights and the prevalence of corruption – all aspects where many Danube states could do better, as Bernhard Boockmann from the Institute for Applied Economic Research in Tübingen explained. Finally, fixed exchange rates, for all their benefits, can lead to a painful loss of competitiveness in the absence of possible devaluation. In particular countries which have seen strong capital inflow from tourism and remittances struggle with high price levels.