Trends of Internal Equilibrium of Economy in New EU Member States

Algimantas Misiūnas, Vladas Rimkus

Abstract


Statement that one of the most important objectives of every national economy is internal equilibrium is emphasized in theory of macroeconomics and consolidated in Lithuanian economy development strategy for the period by 2015. To analyse this balance, Swan diagram known in theory of economics is applied.
The article reviews conditions of internal equilibrium of economy in national economies of the new EU member states. Parameters of internal equilibrium of economy – low inflation and acceptably low level of unemployment – are theoretically linked with the most important parameter of external equilibrium – deficit of payments current account balance. It is shown that almost all new EU member state have no inflation problem and this problem is already solved in a group of 15 EU states. Conditionally higher level of inflation in Slovenia, Hungary and partly in Estonia was related to growth of salaries, i.e. factor of demand inflation operated in the economy. However, it is possible to state that inflation factor for the last years in old and new EU member states had not damaging influence upon internal equilibrium.
More complicated situation is related to unemployment factor. However, problem of unemployment is characteristic both for new and old EU member states. Conditionally low gross level of unemployment in 15 EU states (8 per cent in 2003) was achieved in small EU member states (Luxemburg, Netherlands, Austria, Ireland, Denmark) at the account of low level of unemployment. Level of unemployment exceeds average in the larger EU member states (Spain, France, Germany and Greece). Unemployment trends for the last 2-3 years are positive, however, according to results of employment studies, level of unemployment remains greater than 10 per cent in Lithuania, Latvia and Estonia. Especially urgent problem of unemployment in EU member states remains in Poland and Slovakia, furthermore, there is no tendencies of unemployment decrease in these states.
One of the ways to achieve the internal equilibrium of economy in terms of discussed economic indices is to decrease the unemployment level. The article explains some trends of inflation and employment in new EU member states. Unemployment level dependence on structure of employment is observed: higher level of unemployment is characteristic to states with greater employment in agricultural sector, and lower level – to states with wider employment in industries. However, in future, most of the states link opportunities of unemployment reduction with rapid development of service sector.
It is reasonable to consider internal balance of economy by investigating external equilibrium which is understood as a deficit of payments current account balance in comparison with gross domestic product of the state.

Keywords


economic equilibrium; inflation; unemployment; deficit of payments current account balance

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"Public Policy and Administration" ISSN online 2029-2872 / ISSN print 1648-2603