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The Emerging Bright Spot in Europe

(Versions in Español, Français, Português, Русский)

With all the anxiety generated by the troubles of Portugal, Greece, and Ireland, it is easy to forget that a different part of Europe was in the spotlight two years ago, facing equally dire predictions of bank runs, fiscal ruin, and devaluation.

Today, many economies in emerging Europe are quietly staging a strong comeback. Most impressive is the turnaround in the three Baltic countries, which suffered record deep recessions in the wake of the 2008/09 financial crisis. Take Lithuania, which grew an eye-catching 14.7 percent in the first quarter of 2011. But many other countries in the region are seeing strong growth as well.

True, it will take a while before most crisis-hit countries will be able to reclaim the economic output that was lost as a result of the crisis. But things are definitely going in the right direction. Most encouragingly, the growth pattern is very different from that in the years leading up to the crisis.

What has caused the shift? The answer is both markets and policies.

Given this good news, what more can policymakers do to sustain the recovery—and prevent a new boom-bust cycle? Raising the long-term growth trend is key.

Emerging Europe still has a lot of scope for catching up with advanced Europe. But catching-up is not a law of nature―without the right policies, countries can get stuck, as we have seen all too clearly with Greece, Ireland, and Portugal.

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