After they achieved 2.2 percent growthin 2011, early indications are that the economies of the sixcountries in South East Europe (the SEE6: Albania, Bosniaand Herzegovina (BIH), Kosovo, FYR Macedonia, Montenegro,and Serbia) are slowing drastically and can expect just 1.1percent growth in 2012. Economic conditions in the Euro zoneare holding back economic activity and depressing governmentrevenues in SEE6 countries. With both public debt andfinancing pressures high, most countries in the region needto embark on major fiscal consolidation programs if they areto reverse their adverse debt dynamics and avoid financingproblems down the road. The good news is that in general theSEE6 financial sectors are still relatively well placed,despite elevated risks and vulnerability to adverse shocks,especially the possibility of contagion if the Greek crisisshould intensify. The bad news is social: SEE6 countrieshave the highest unemployment and poverty rates in Europe.Yet even with the difficult short-term situation, SEE6countries now have historic opportunity to board theEuropean 'convergence train' and over the longterm reduce their per capita income gap with developedEuropean Union (EU) countries. All earlier entrants wereable to 'catch up quickly.' In principle, the same'convergence train' is now pulling into the EUcandidate countries in SEE6; but these gains are notautomatic, they will materialize only if country policiesand reforms facilitate them. The long-term SEE6 structuralreform agenda must leverage greater trade and financialintegration and reform labor markets and the public sector.
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